Your odds of being richer tomorrow, rather than poorer, just got a wee bit better.
Maya McGuineas, a fiscal hero from the New America Foundation and the Committee for a Responsible Federal Budget, and Bill Galston from the Brookings Institute, put a fresh federal budget proposal on the table, summarized here.
It has the critical elements of a Grand Bargain necessary to avoid an exceedingly grand financial wreck.
Whether Washington acts on it in time remains to be seen. So far, camps of the right and left are having buckets of fun bludgeoning their opponents. There is a profusion of passion but no palpable progress.
McGuiness and Galston's 18 page plan moves beyond the Bashing Bozos. It realistically pushes the federal budget to near balance and stabilizes the federal debt at 60% of GDP, a number that has surfaced as a rough estimate of "safe". It gets this job done in ten years.
For the left, McGuiness and Galston tilt Social Security benefits more towards the poor. They raise taxes both by cutting tax breaks and by adding a carbon tax. Their plan trims defense and adds a war surtax, too.
For the right, the proposal adds private accounts to Social Security, freezes domestic spending for three years, and institutes tort reform.
The plan is fertile seed on middle ground that is currently barren. The Obama Administration's budget doesn't even pretend to get close to balance or to stabilize the national debt, much less bring it down. And Republican Congressman Paul Ryan's proposed budget works the federal debt back down to 60% of GDP by 2066 - snail's pace in a lightning fast world.
It's not that either man lacks the intellectual capacity to plan for a credible, sustainable, and timely budget. It's that the old political formula - spend big, tax less, to heck with tomorrow - still wins with special interest groups, the press, and most voters.
With the McGuiness-Galston plan, the first steps to gain control of the federal budget are clear. Both left and right can walk away winners.
Yet even if the plan were adopted tomorrow, government finances would still pose grave threats to family prosperity.
A grossly inefficient health care sector would still pour concrete into overshoes worn by every family's budget. Public employees would still be owed retirement benefits equal to 100% of the national debt. State and local governments would still have some very weak sisters that will soon be asking for taxpayer bailouts. And our present tax system would still bear a striking resemblance to Medussa's hairstyle.
Thanks to Maya McGuiness and Bill Galton, Washington no longer needs to write a script. It can simply raise the curtain and get to work. Let's hope it does.
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See Maya McGuineas in action before the President's Fiscal Commission on YouTube.
Roll forward to 14:30 where she is introduced.
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I disagree with their plan Vince, since it continues to use the Social Security Trust Fund as a cash cow to subsidize the budget.
ReplyDeleteThe fact is, taxes on dividends are way too low, as well as taxes on capital gains. Put both of these back to normal income levels.
Do tax reform so that domestic civil and military discretionary spending is paid by a VAT.
Entitlement spending is paid by an expanded business income tax. That should include exclusions for employer provided health insurance, education credits and an expanded refundable child tax credit of $500 per child/per month to be paid with wages or TANF benefits (replacing other credits and poverty subsidies). At the state level, you could also have a matching tax with credits for employer contributions to public or private charter schools - depending on the preferences of the employees or the registration of their children - or the registration of employees registered in remedial adult education (to replace TANF).
You can have a surtax for the wealthiest taxpayers and hiers with capital gains, dividends, interest and income taxed at a single progressive rate structure (necessary, since the rich don't spend all their money - especially at the higher levels), funding naval sea duty, overseas deployments, international civil spending, net interest and debt repayment (including the debt held by the Fed if Libertarians really want to end it). The tax base for the surtax would include all disbursements from inherited income (but not the assets themselves until sold) with the current ESOP exemption still in force - as well as a charitable contribution credit or exemption - but nothing else - especially housing.
This will balance the budget entirely in 2015, with the understanding that if health costs continue to go up, the Business Income Tax rate will go up with it. That alone will motivate savings.
Michael, personally I think the time for more sweeping changes than those proposed by CRFB in both spending and taxation is approaching.
ReplyDeleteYet in this environment, I think the modest compromises they are proposing are almost "radical".
Philosophically, your premise that capital and labor should be taxed equally rings true with me. Nonetheless, I think we should ensure we don't reduce incentives to maintain and build the nation's capital stock.
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