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reduce outdated and unneeded major programs like agricultural subsidies, but we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.
