Thursday, April 5, 2012

Debt Problems

It's amusing to see just how un-serious either party, or heck almost any of us are about doing something serious about the national debt.  We squirm about how serious a problem our debt is but we refuse to give our politicians the political space to do what is necessary.  And really, it's not that difficult.

First let me get to some of the non-serious proposals being pushed out there by both parties.  First Paul Ryan's proposal to cut the deficit by cutting taxes for the rich, keeping taxes on investment low and cutting mostly unnamed spending on entitlements that will almost inevitably hurt the poor:
Like David Brooks before him, Stewart has fallen into the trap of believing that Paul Ryan is something other than a charlatan and a political hack. There are real tax reform proposals out there, like Domenici-Rivlin, which would cut the top rate to 27% but tax capital gains as ordinary income). I don’t agree with Domenici-Rivlin because I think now, with looming structural deficits ahead, is not the time to cut tax rates. (In White House Burning, we propose to reduce or eliminate preferences for investment income, mortgage interest, sales of homes, employer-provided health care, charitable contributions, state and local taxes, and state and local bonds, among others.)
Seriously, this is why I believe Mitt Romney is in trouble because without stretching the truth one iota it's really easy to come up with an attack ad like this:

or this:

Consider, in contrast Obama's attempts, which are also un-serious.  Bowles-Simpson's debt commision is one good example.  This was a plan that was never seriously supported or adopted by the Obama administration:
That demonstrated a level of political tone deafness that seriously hurt the credibility of what had now become a B-S cult. They were seriously suggesting that the Obama White House unilaterally support the tax increases and spending cuts included in the two co-chairs' plan even though it was virtually guaranteed that the GOP would never agree to do the same and would punish Democrats for doing so.
The primary difference between Obama and Ryan is that Obama has not pretended to proposed a serious plan to attack the deficit.  Ryan has pretended to, but his plan is one designed to appeal to the most extreme base of his party.

Until both parties can agree to cooperate and pay the political price of taking on some combination of  increased taxes, closed tax loopholes and cuts in spending that would invariably incur, then we are stuck with our current debt and deficit trajectories.

And really, the amount of pain to inflict is not that large and the way forward is not that hard.  One simple idea to seriously reduce our long term debt and deficit is to simply let the Bush tax cuts expire.
More importantly, the Bush tax cuts are responsible for the current political pressure to dismantle the federal government. So far, they have added almost $3 trillion to the national debt.** Despite all the damage they have already done, letting the tax cuts expire would still eliminate a big chunk of our long-term debt problem. Without the Bush tax cuts, we will have more than $300 billion per year, beginning in 2014, at least some of which could go toward helping ordinary people.*** With them in place, there is no chance of finding the money to patch our threadbare safety net, and one of these years the Republican assault on Medicare will finally succeed. It is a prerequisite for any kind of progressive policy that involves spending money.
 A much more difficult idea, politically, but a much better idea practically is to tackle all of the loopholes in our tax code like the tax exemptions on mortgage interest rates, or on employer health care plans, or the low taxes on capital gains.   Broaden the tax base, make the tax code simpler, then the tax rates can be lower and less intrusive while still maintaining or increasing our revenue.

The real problem is that anyone who is serious about debt reduction gets bludgeoned politically.  It is up to all of us to give our politicians to do the right thing.  We need to pay for the stuff we really want government to do.

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