DEBT CEILING DEADLINE TASERS D.C. PROCRASTINATION

Pols Get Busy with Budget Numbers

On 2 August, the US Treasury expects to run short of cash.  Both sides fear a US Government default if the debt ceiling is not raised in time. 

Vice President Joe Biden is attempting to shepherd a group of Senators and House Members toward a budget deal that keeps the government borrowing. 

Public deficits have been chronic since the US Bureau of Economic Analysis began its tally in 1929.  Washington is quaking at the thought of changing its "don't worry, be happy" tax and spending habits. But change they will. Those policies have gradually metastasized over the last 80 years into a lifetime tax of $1.3 million for a typical US family and unfunded public liabilities of $800,000 in addition.

With concern swelling last year, President Obama appointed the Simpson-Bowles commission to recommend a fix.  Contrary to near universal expectations, the team produced a remarkable work product.

It recommended wholesale reform of the corrupted US tax code.  In return for closing tax breaks and straightening the twisted economic incentives, the Commission would lower tax rates significantly.

Further, Simpson-Bowles grasped the famous third rail of Social Security and Medicare. It recommends cuts to senior subsidies and increasing related taxes, while boosting benefits to the poorest of oldsters.

The Commission's plan makes progress reducing the federal deficit to 1.5% of GDP by 2020 from 10% last year.   

Obama did not endorse Simpson-Bowles.  On 13 April the Administration issued the President's Framework, staking out a separate budget position.

That Framework does not change Social Security. Attempting to control medical costs, it goes beyond Obamacare in shifting more power away from the public and to a beefier Medicare bureaucracy.

Notably, the President supports sweeping tax reform and lowering corporate income tax rates.

The President's Framework cuts deficits $2.5 trillion over the next 10 years, versus Simpson Bowles cuts of $4.0 trillion. That's from a baseline of $9.4 trillion in deficits the President first proposed in February.

Paul Ryan, chair of the House Budget Committee, reforms more.  His plan cuts Washington deficits by $4.0 trillion between 2012 and 2021. And it does this while reducing the nation's tax burden by $610 billion.

Senior subsidies are at the core of the nation's self-destructive financial trajectory.  Ryan tackles Medicare by changing the program from a free all-you-can-eat buffet to a fixed government payment toward seniors' health insurance. Most importantly, he caps the growth in taxpayer costs per beneficiary to inflation.  Of the three leading budget plans, Ryan's proposal addresses medical costs most squarely.  

Ryan's plan is a greater agent of change than the other two. His youth-oriented budget puts more of the boomer generation's cost on the boomers themselves. That reduces the burden on younger people. It offers the best hope of broad prosperity for the middle-aged and the young.  

Each of these three prominent proposals agree on important points. All favor major reform of the tax code. All make attempts at controlling medical costs.  All cut spending.  Regrettably, all continue to run deficits for a decade, too.

The current round of budget action is expected to go to the brink. Former President Clinton remarked, “If we defaulted on the debt once for a few days, it might not be calamitous.”  Expect wonderful political theatre.

This observer suggests that if you do not play a role, you will be written out of the script.  Contact all your federal, state, and local elected officials with your opinion. Do it early. Do it often.

Regardless of the outcome of the current negotiations, intense budget debate is here to stay. And that is healthy for democracy.  Citizens are learning that public sector finance is too dangerous to leave to the public sector.

Sources: US Bureau of Economic Analysis, MyGovSpending.com, the Committee for a Responsible Federal Budget, Wall Street Journal


(This article first appeared in the June issue of Smart Girl Nation.)