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  We can and should eliminate or substantially reduce outdated and unneeded major programs like agricultural subsidies, but we cannot and should not eviscerate the hundreds of essential programs and agencies supported by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.   


5 comments:

  1. If only national news media would bring natural national opinion leaders like Mr. Crandall to the public's attention to express these homely, practical truths frequently enough for the public to recognize that there isn't a free lunch. Instead, as he writes, we get drama, nothing much better than sportscasting.

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  2. Well said Bob, but I doubt any politician will have the guts to stand up and say what they are willing to cut or tax. Heck, the Tea Party losers actually think we can cut taxes some more, and increase the size of the defense budget.

    As I said before, the military will have to take the hit on cuts also, but watch out for the Tea Party covert priorities. Rep. Eric Cantor is the leader of the cult, or whatever it is, and is from northern Virginia, home of the defense contractors and overpaid lobbyists. His agenda is to fully fund the "military money merry-go-round" at any cost and make ordinary folks pay the price. Well, 50% of working Americans are now one pay check away from not paying their bills and are simply out of money. No wonder the economy sucks. It sure would be nice if some of those 10,000,000 jobs that were lost due to free trade agreements came back home.

    Meanwhile, some Republicans are ready to take the debt limit debate to a government shutdown/default. I guess their red state constituents are angry at them for caving in on the budget, so now the politicians are willing to hold the country hostage to save their faces and their jobs.

    To one up that insanity, the Dem leaders, Reid and Pelosi, actually endorsed trillion dollar platinum coins to run the government. That would have been the nail in the coffin for the dollars credibility around the world. The Washington Big Top is putting the circus to shame.

    And down the street at the White House, well, President Obama just wants it all. Has he even vetoed a bill yet? IDK.

    Keep 'em coming Bob. They don't listen to me, but they might listen to you.



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  3. It's been true for some time that none of the Congressmen and hardly any of the nominating wings of either party can have a rational discussion based on facts instead of ideologies based on their respective fantasy worlds. A lot of your blogs deplore this but what can be done about it?

    A good explanation why this is so is in the recent book "the big sort" (thebigsort.com). The central thesis is that Americans increasingly live separate lives, living only among people they're comfortable with. One one hand, ex-urban, red-state folks in gated communities (all the better to keep out people 'not like us') and west/ east coast city types (+ Chicago of course). Same thing goes for churches.

    What happens when like-minded people coagulate is 1. there's hardly any more exchange of diverse ideas and 2. the more extreme positions come to the fore as members of each group try to outshine each other what great core group members they are. This is all really bad in a company too.

    Hence we now have parties whose core believes either
    - government is the root of all evil and inefficiency, all "discretionary programs" should be gutted along with taxes; and
    - people are entitled to cradle to grave security, and it all can be paid for by taxing the "rich" (ie. people not like them)

    Some businesspeople with integrity get fed up (like David Cote for one) and wonder why there is never any open discussion of the real problems. But don't forget in their world there is clear accountability and when decisions are made (instead of postponed), people mostly get on board even when they disagree to make the result a success. Politics is different b/c no one has real authority but even small decisions require very delicate balancing of constituencies. The Founders designed it that way.

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  4. Dear Mr Crandle,
    I read that you get enraged with headlines daily. Please don't do that. Your thoughts and opinions are right. The powers that be would like you to rage and have a heart attack. I'm from Canada and worked with good management, good people like you once upon a time. There is collective thinking but with a different endgame. New culture of management. Scary out there right now. I understand the US has 50 million hungry kids a day. That really got my attention. Ron Paul speaks on youtube about fixes. Makes sense. Have you watched him on youtube? Keep writing.

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  5. It seems like an across the board 5% cut would be the most politically possible. No sacred cow, no congressman has to explain why they didn't put up a fight any one issue. Every program has to make due with a little less for the sake of country.

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