I was reading Paul Krugman's blog when I came across an article he published a few days ago titled "Let's Take a Hike". In this article (access it here: http://www.nytimes.com/2011/04/25/opinion/25krugman.html?_r=1&scp=3&sq=paul%20krugman&st=cse#), Dr. Krugman bashed the most-recent Republican plan (the Ryan plan) to deal with the country's horrific public deficit and debt problems.
His problem with the Ryan plan was, essentially, that it only dealt with one aspect of balancing the federal budget: cutting spending. Not only does Paul Ryan want to cut spending, he wants to cut entitlement spending and that is unacceptable to Dr. Krugman (I don't see a problem with cutting entitlement spending due to the fact that our entitlements are way out of line. It just seems like Dr. Krugman is protecting himself and his fellow Boomers).
Dr. Krugman believes (and rightly so, in my opinion) that we need to raise taxes to attack the deficit and public debt problems. Specifically, he believes we should repeal the Bush tax cuts and increase the Social Security cap while cutting defense spending: according to some estimates, this program will balance the budget by 2014 and create a surplus by 2021.
I have some issues with his prescriptions, though. First, I do not agree with his assessment that defense spending should be the only target of budget cutting. Defense spending needs to be trimmed down by renting out our overseas bases, ending operations in Iraq, and finishing up in Libya immediately. But, entitlement spending needs to be dealt with as well. It is crazy to think that only our warriors need to have their funding cut while retirees and welfare recipients do not have to pitch in. That proposal is not just at all.
Second, I do not think taxes should be raised immediately (mainly because the economy is still a little wobbly and we need to secure our growth rate with consumption spending). I would prefer to see cuts in entitlement spending and defense spending first, and then an increase in taxes on the wealthy. A small increase in taxes on everyone else should be a last resort after the economy has stabilized. I believe things should go in this order because of the relative rate of return of each type of relief (as I will explain) and due to Krugman's own call for "shared sacrifice".
Entitlements produce very little long-term value for the USA (especially the way they are run now in terms of underfunding issues and excessively large benefits). In order to save Social Security, Medicare and Medicaid for the long term, it is necessary to make cuts to those programs immediately; the savings we start making now will compound over the long term, hopefully bringing the programs back to solvency. Additionally, (it may be cruel to say, but it's true) the retirees and the poor who benefit most from entitlements are essentially getting paid to NOT work. They're getting money from the government to get by, and I do not believe they should be exempt from the pain the people who are actually working feel. Entitlement recipients need to share our sacrifices, too. I propose a modest, but immediate 2% decrease in all entitlement benefits: this step will save about $45 billion every year while not crushing the indigent and elderly.
Additionally, we can look at the joke that is Medicare Part D: it is primarily an unfunded liability that was pushed through by a Republican Congressman (Billy Tauzin) who immediately resigned after Part D's passage and is now making $2 million annually working for a pharmaceutical lobbying group. The real stinker about this program is that it does not allow the federal government to negotiate drug prices with pharmaceutical companies (thanks to Tauzin) on behalf of enrollees in the program (the elderly): enrollees, and, eventually, Medicare Part D, pay about 58% more for drugs than the VA does. As of 2009, Medicare Part D received about $50 billion in revenue: only $5 billion of that came from beneficiaries. The other $45 billion came from federal and state government payments. This program stinks of government excess and pharmaceutical corporate welfare and should be shut down immediately.
Defense cuts should occur alongside entitlement cuts. Specifically, we spend $60 billion annually in Iraq and we spend an additional $42 billion by running our 662 bases around the world (not including Afghanistan). If we rent out those bases (see: http://theyoungandthescrewed.blogspot.com/p/solution-to-young-americans-current-and_23.html) we could make billions of dollars while saving $60 billion annually by stopping operations in Iraq. That is an additional $100 billion shaved off the budget.
After some substantial cuts have been made to government spending, we need to look at taxing the super-rich. I don't believe everyone knows this, but individual income after the first $106,800 is not subject to the Social Security tax of 6.2%. That cap needs to be removed. Depending on estimates, that would earn the government about $200 billion in extra revenue.
I am skeptical of Krugman's call to raise taxes on the middle class, however. This may be my conspiracy side talking, but I believe we may very well be headed for an intentionally created bout of inflation (as I said yesterday, Bernanke raised his inflation expectation to 2.8% this year, and that is probably optimistic given the awful rise in oil prices). Throwing additional tax burdens on an already cash-strapped middle class seems like a good way to run tens of millions of Americans into the ground like a certain Russian leader once proposed (see: http://www.brainyquote.com/quotes/quotes/v/vladimirle125951.html).
(The previous paragraph may sound a bit crazy, but, I am a cynic and I sort of doubt that our leaders have our best interests in mind. That is why I am open to somewhat unconventional opinions on current affairs).
In sum, with the exception of Krugman's unfair request to not cut entitlement spending and his desire to raise taxes on the middle class, I see a lot of good in his plan.
No comments:
Post a Comment