Sunday, January 6, 2013

TIME FOR A REAL DISCUSSION



               

In our ever more dysfunctional political system, discussions about real problems never seem to happen. As a result, neither our problems nor potential solutions are well understood. 

For whatever reason – probably because facts are boring and conflict sells newspapers and draws viewership – the media seems intent on casting last weekend’s Congressional action as a plus or a minus for one or another of the political parties and individual political figures.  The facts are that while the legislation raised taxes on some affluent Americans by a bit, it also made the ill-advised tax cuts of 2001 and 2003 permanent for most Americans and did nothing to reduce US government spending.  As a result, the deficit will increase by about $4 trillion dollars more during the next 10 years than would have been the case had the Congress done nothing.  The entire charade was political theatre, pure and simple.

The primary problem, for the benefit on anyone who has been living on another planet for the last several years, is that our tax system is not generating enough money to pay for the many programs and services Congress has voted to adopt. We have more government than we are paying for – and we can’t continue living on our credit card forever.  

Federal spending is running at about 23% of our gross domestic product (GDP) while our tax system is generating federal revenues of only about 16% of GDP. The federal government’s share of Gross Domestic Product – federal revenue as a percentage of Gross Domestic Product – is far below the 21% collected by the federal government in 2001 and well below the average collected for the last 60 years. 

The notion that we can bring the deficit under control simply by cutting spending is pure fantasy. The big entitlement programs – Social Security and Medicare – can certainly be modestly adjusted, but cannot be substantially changed without repudiating promises on which millions of Americans depend. Moreover, our aging population will be pushing entitlement spending up, thus offsetting our efforts to reduce costs. 

We can and should stop acting as the world’s policeman, and having done so, should be able to reduce defense spending substantially.  We can and should eliminate or substantially reduce outdated and unneeded major programs like agricultural subsidies, but we cannot and should not eviscerate the hundreds of essential programs and agencies supported by the domestic non-defense budget which politicians love to rant about reducing.  We should demand that the government’s agencies and programs be run more efficiently, but whatever we save will likely be more than offset as interest rates rise and the interest we must pay on our massive government debt increases.
  
To have a real conversation, we need to know what share of our national income the government needs to provide the services we all want and expect. The President-- who is supposed to lead – needs to put together a list of what he thinks we need, and what he thinks we can get rid of. Others will disagree, but instead of denouncing the President should be required to propose alternative lists of things to be kept and things to eliminate. Debating the merits and desirability of alternative governmental functions would constitute a real discussion about what we are prepared to pay for and what we are willing to eliminate. Unhappily, no one in political life has yet been willing to put together a list, since eliminating anything will offend someone. 
  
Once we reach a consensus on what’s needed, we’ll need to have another discussion about how to raise the needed money. It can’t all come from those characterized as rich, although we should – in my judgment – expect affluent Americans to pay the same percentage of their incomes as they did in 1990, before the two rounds of ill- advised tax cuts in 2001 and 2003. Doing so will increase their tax burden by a lot more than what’s required by the recent fiscal cliff compromise, and would be a step towards a solution. 

 But no amount of taxes on the rich will even scratch the surface of the deficit problem.  To pay for the government we all seem to want, every American is going to have to pay more than we pay today. Like it or not, the “hard working middle class” that our politicians love to pander to cannot be spared their share of the burden. 

Getting the necessary money will require major changes in our tax system.  Taking all the money we need as taxes on income will have substantial negative impacts on incentives and capital accumulation, and will slow the pace of an economy that is already growing too slowly. In my view, we need to design and implement a far simpler income tax code, with fewer deductions, loopholes and exceptions, impose higher Social Security and Medicare taxes,  levy a gasoline or usage tax to pay for our highway system and add a value added tax.  Most other developed countries employ a similar variety of taxes to meet their revenue needs, and we ought to follow their lead. 

Whatever the answer, we aren’t going to get there until all of us tell those who represent us to get serious. Any member of Congress who thinks that refusing to raise the debt limit – which amounts to refusing to pay for programs Congress itself  has  voted to implement  – makes any sense should be defeated when he or she next runs for office and should be told so by every constituent, whether liberal or conservative. 

Instead of threatening to destroy the full faith and credit of the United States, every member of Congress should stand up and tell us – in detail – exactly which government programs he or she wants to eliminate, what modifications to present rules and regulations they propose and how much the government they propose to preserve will cost.  Having done so, they should also tell us how they propose to raise the money needed for the things they think we should continue doing.

Unhappily, the message hasn’t gotten through.  I am writing this on Sunday, January 6th, after having watched both Mitch McConnell and Nancy Pelosi avoid any hint of specificity when responding to questions on Face the Nation.  Neither of these people is stupid.  Mr. McConnell knows that the government needs  more revenue, and that to provide it everyone is going to be required to pay more taxes.  Ms. Pelosi knows that we cannot sustain current levels of spending on Social Security, Medicare, and every other program she favors,  however desirable they may be in the abstract.   Yet neither is prepared to speak the truth, for fear of offending the ideologically driven “party base” to which each seeks to appeal. 

It’s time – and long past time – for a real conversation.  Each of us needs to do what we can to be sure that whoever represents us understands that we will no longer tolerate generalities, ideologically driven rhetoric and dishonest numbers. 

Unless we act, we will leave our children and grandchildren an America that is a pale shadow of the great country we have been privileged to enjoy.   


Friday, December 21, 2012

I WANT A LIST -- AND YOU SHOULD TOO



All day, every day, television screens across the nation are filled with talking heads and politicians blathering about the dreaded fiscal cliff.  None of them bother to make the point that a “deal” to avoid the fiscal cliff will do nothing to solve our long term financial problems, and all of them talk generalities, avoiding the unpleasant specifics.

Virtually every politician seems determined to cut non- defense discretionary spending, although none are willing to specify which activities and agencies they want to eliminate or  eviscerate, and none seem to know much about what they are proposing to cut or about what has already been done.

 Thus, a primer on a subject few of us know much about – and a word of warning that cutting such spending any further will likely have extremely unpleasant results.

About two thirds of the federal budget consists of mandatory spending.  The remaining one third is labeled discretionary, and about 60% of that is defense related.  Non-defense discretionary funding thus amounts to less than one half of one third of the federal budget, or about 15% in total.
And that small slice of the budget pie has already been cut to levels well below the CBO baseline estimates that were in place when the 112 Congress took office in January of 2011. Assuming the caps and projections now in place continue, and without considering the additional reductions mandated by the sequestration due to take effect at the end of this year, spending on discretionary non-military spending will decline by $1.5 trillion during the next ten years and will reach – at the end of the ten years -- the lowest level of spending as a percentage of GDP since record keeping began in 1976. 

Well, you say, is that bad?  After all, if this is discretionary spending, maybe we can save the money and no one will notice. Here is a partial list of what’s paid for by discretionary non-military spending.
·        The Veterans Administration, which is already doing a horrible job of caring for our fallen warriors, and needs more money, not less.  
·        All Homeland Security Activities, including the Transportation Safety Administration (TSA), which includes the Coast Guard and everything else in the homeland security system. 
·        The National Institutes of Health, the Department of Energy, the National Aeronautics and Space Administration and the National Science Foundation.
·        The Federal Aviation Administration.
·         The Federal Bureau of Investigation. 
·        The Drug Enforcement Agency. 
·        The entire federal prison system, which is big since we insist on imprisoning a higher percentage of our population than any other advanced country.  
·         Federal aid to local school districts. 
·        The Food and Drug Administration, which already does a very inadequate job.  Do you still feel comfortable buying hamburger knowing that FDA does not inspect meat packers who grind feces along with meat?  
·        The National Parks System.
·        Federal disaster relief.  What will we do about the next hurricane?  Just leave people on their own?
·        Federal low income housing programs
·        Federal assistance to states and cities for clean water projects.
·        And lots else besides.  

These things are clearly important – and essential for many citizens.  But since there are few lobbyists working the halls of power on behalf of projects like this, politicians know they can get away with cutting things we need while protecting things we don’t need – like more overpriced defense systems.
The cuts already made will leave the agencies and programs in this category $650 billion short, during the next 10 years,  of what’s needed to sustain per capita service levels equal to what was provided in 2012. As programs and performance lag, we’ll all notice – but by then, many of the politicians now refusing to raise taxes and advocating these cuts as an alternative  will be drawing their lifetime pensions and laughing at our collective foolishness.
Do you think cutting essential services make sense?  I don’t think so, and I’ve asked my senators and representatives to send me a list of what they think they are cutting when they advocate less money for discretionary non- military spending.  I hope you’ll do the same.         

Saturday, October 6, 2012

POTHOLES AND POVERTY - OR SOMETHING BETTER




Recently, Congress acted to extend the 18.4 cent Federal gasoline tax to the end of March, 2013.  The fact that extending the tax was contentious is a sad commentary on the lack of both planning and wisdom that characterizes our national legislative process. 
  
The tax, which has not been raised since 1983, is clearly inadequate. In 2008, the Highway Trust fund – which is the fund intended to support transportation improvements in the U. S. – ran out of money.  Spending from the Trust Fund has exceeded revenues since 2002.  Although Congress has plugged the gap with revenues from the General fund, it has failed to come up with an integrated plan – and a funding program –to assure adequate maintenance of our existing assets and provide the improvements needed to assure competitive capabilities in the years ahead. 

Allowing the gasoline tax to lapse would, among other things:

  •  Encourage people to drive more, thus worsening the already severe congestion that irritates us all – and costs more than $100 billion annually in extra fuel costs. 
  •  Increase our negative trade gap, and increase our  energy dependence  
  • Cost lots of jobs.  1billion in infrastructure spending supports about 25,000 jobs; if the tax lapses and we stop spending, hundreds of thousands of jobs will be in immediate jeopardy. 
  • Accelerate the already severe deterioration of existing bridges and highways

It’s hard to understand why anyone would even consider allowing the tax to lapse.  Americans pay far less for gasoline than driver’s in other countries, and much less in fuel taxes as well.  The recent Simpson-Bowles Commission recommended an immediate 15 cent per gallon increase in the tax; others have suggested more substantial increases.  Everyone except politicians seeking votes seems to agree that our infrastructure needs immediate and substantial help. 

It is clear that it does – and that the needed help will cost lots more than another 15 cents a gallon at the pump.   In 2008 the national Surface Transportation Policy and Revenue Study Commission – a Congressional creation – recommended spending at least $225 billion annually, far more than we now spend. Various estimates put the bill for deferred maintenance of our highways and bridges in the neighborhood of $2 trillion.
     
In addition to needing lots more maintenance on our roads and bridges, we also need an integrated plan to upgrade and expand our capabilities in many areas. We need a plan that measures the adequacy of our highways, mass transit capabilities, airports, ports, communication systems, energy transmission systems,  waste facilities, water systems, hospitals, law enforcement facilities and educational assets against those of other countries – and that provides for the many and substantial  improvements needed to put the U. S. back in a position of leadership. 

Around the world, our competitors are spending far larger shares of GDP on infrastructure improvements than the U. S.  Brazil, India and China, are reportedly spending more than $1trillion annually! And we are clearly falling behind. 

In 2005, the World Economic Forum rated the U. S. # 1 in economic competitiveness; today, we are ranked #15. Unless we fix the problem, we’ll rank even lower in the years ahead.  

Solving the problem is a necessity if we want the country and our kids to have a satisfactory future– and stepping up to that necessity also represents an opportunity to solve one of today’s major problems. If Congress and the President were to come up with a national infrastructure plan this fall, and fund it at just $200 billion annually for the next ten years, we’d generate about 5 million new jobs.

Although it is clear that $200 billion will not be sufficient to meet the competitive challenge being mounted by others, it will be enough to  provide a big chunk of the roughly 12 million jobs we’ll need during those ten years to put the currently unemployed back to work and provide opportunities for new workers.  Moreover, the economic activity created and facilitated by that infrastructure investment will drive GDP growth, create lots of additional employment opportunities and – hopefully – provide the resources needed to build the capabilities not included in the initial plan. 
     
Some will doubtless say we can’t afford it. In my view, these are investments we cannot afford to forego.  Moreover, since we have spent or committed between $3 and $5 trillion during the last ten years in Iraq, Afghanistan and other military adventures – spending which has produced nothing and has yielded neither assets nor infrastructure to support our future growth – I just don’t buy the argument that we can’t find a way to finance the assets and capabilities needed to assure a decent future for our kids and grandkids.
Those interested in a more comprehensive examination of our infrastructure problem can find an excellent recent report here:
 

ENOUGH ALREADY



I recently came across a very sad and powerful video about the impact of Agent Orange, a chemical which was heavily used by the US during the Vietnam War.  The video gave me fresh reason to doubt the truth of my long held hope that the US is the good guy in any fight.  It also led me to wonder if anyone now thinks that saving the people of Vietnam from the “scourge of Communism” was worth the price the Vietnamese people – and our own US veterans of Vietnam – are now paying for providing that rescue. If you think it was, watch  


During the Vietnam years, much was heard about the domino theory, the idea that if Vietnam became a communist state, all of the neighboring states would topple, like dominos.  60 years later, that concern seems ludicrous.  Since Vietnam we’ve moved on to other threats, including the topic of the day – an Iranian nuclear weapon -- which many in Washington find so terrifying they seem willing to start still another war to prevent Iran from succeeding.     

How serious do you think that threat will seem 60 years from now?  My guess is it will seem equally ludicrous, and that the world by that time will have moved on to new concerns. 

The US has been either at war or fighting someone, somewhere, during most of my lifetime.  We have been in Afghanistan for more than a decade, and are only now ending our long involvement in Iraq.  Of course, most of us don’t notice, for we no longer ask our citizens to fight our wars – we have volunteers – and we don’t bother to pay for them either.

While our leaders scrupulously avoid the subject, we all ought to pay attention, for the costs of these engagements are stupefying.  To date – as of September 30 – 6,579 US troops have died in these two wars, and 49,871 have been wounded. In total, somewhere between 225,000 and 250,000 people – most of them civilians -- have died, another 350,000 have been wounded and more than 7.8 million have been displaced. 

Causing all that damage has cost us enormous sums.  According to a recently completed study by Brown University’s Watson Institute for International Studies, the wars have or will cost $4.4 Trillion, not counting $1 Trillion in interest costs on the money we’ve borrowed to pay the bills and excluding lots of other costs that are very difficult to measure.     http://costsofwar.org/

Most people have no idea of how much a trillion dollars – a thousand billion – really is.  A trillion dollars laid end to end would reach the sun and if stacked one on another would make a pile 80 miles high.   If you spent a dollar a second, a trillion dollars would last you 32,000 years. And a trillion dollars will buy a lot of the things America needs as well. 

A trillion dollars would pay the salaries of every teacher in the country (about 2 million people) for roughly nine years. It’s enough to hire 2.5 million people at $15.00 an hour for the next 10 years (can you think of work for them to do?). It’s enough to write a check for $3,400 to 300 million people (almost everyone in the US).  It’s a gigantic number – and we’ve wasted more than five times that much while killing or wounding more than 50,000 American soldiers and accomplishing, so far as I can see, absolutely nothing.
  
I’m sick of war and the maiming and killing of our own and others’ kids.  And I’m sick of hearing that we cannot afford to repair our infrastructure, improve our educational system, pay for health care, continue government research and development and develop our energy resources to achieve independence – all the while dumping unthinkable sums in foreign wars that achieve nothing. 

All the carnage is a great waste.  World military spending now amounts to about $1.63 Trillion, about 2.6% of world GDP and approximately $263 for every person in the world.  The United States spends about 41% of that total – more than China, Russia, France, the UK and the next ten countries all combined.  

We all want to be safe.  But if we pulled in our horns, let other people and other countries choose their own way, and brought all our troops home, we could cut defense spending by 50% and maintain armed forces formidable enough to discourage anyone who might think about attacking us.     I think it’s time – and way past time – for us to do so.

Enough already.