November 21, 2008

Why yes, Mr. Cheney, deficits DO matter

This is a video for IOUSA. It's well produced and eye opening for those of you who may not understand federal spending, the national debt and our future obligations. Yes, we've talked about this a number of times, however, you could always do with a refresher course.

Sure, there are a number of holes, however the gist (the US needs to make some changes) is spot on. So what's to be done?

While the issue is complex it's far from intractable. And we can deal with it. First off, there have to be caps on Federal spending. For one thing, our defense spending is just out of control and has to be scaled back dramatically. Cutting DoD by 50% would functionally eliminate the deficit without any changes to tax policy. Even then, we'd still be spending dramatically more on defense than many of the largest countries on the planet. Combined.

Next up, we need some rationality on SS. The bottom line is that with health care most Americans live far longer than they did when the program was created. It's time to raise the retirement age to 68. That step alone will go a long way to eliminating the long term funding gap in SS and that age needs to be increased over time to compensate for people living longer.

As for Medicare, it's more of a problem and will probably be fixed as part of a national reform of health care. Part D, the horrendous drug benefit, can be dramatically improved just by allowing the government to negotiate prices.

Now we come to taxes. Income taxes are going to have to go up, mostly on the wealthy and upper middle class. It doesn't need to be a dramatic increase (as the movie suggests). Frankly, the closer you get to a 50% marginal rate it depresses the capacity of the economy grow. Ideally, you don't want to see a top marginal rate above 45%. Combine that with eliminating the cap on SS and many of our problems get fixed.

There are a couple of things on which we need to spend money and before we can get to the good times (running surpluses again), we have to make some substantial investments in alternative transportation fuels (cutting the money we send overseas) and in infrastructure like schools, roads and public safety. Even if we have to run massive deficits (I'm thinking at least $1 trillion in new debt), this money will provide us with the infrastructure and energy solutions for the next leg of economic growth. That will complete the balance and should help finally reignite wage growth.

All this can, of course, very easily be undone in about eight years with the return of fiscal irresponsibility. For 30 years people like Dick Cheney, George Bush, Sarah Palin, Rick Perry and Ronald Reagan have told Americans that tax cuts will pay for themselves. They don't and they never have.

This is the reckoning and it's time we all stood up and made those who would return us to fiscal insanity are always shouted back down.

Posted by mcblogger at November 21, 2008 09:01 AM

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