How Would You Balance the Budget? Preferred ratio of tax increases and spending cuts

[samclem]

Question--If you believe action is needed to balance the federal budget, what mix of tax increases and spending cuts would you prescribe as being "about right"?

For historical reference:
Inflation-Adjusted Dollars (2009)

 

[dex]

Where is the option for:
Increase taxes that doesn't affect me and decrease Gov't spending for everything that does not affect me.

 

[ERD50]

My gut says maybe 20% more tax, the rest from cuts, but I haven't analyzed the data, so I won't vote now. Though it seems that other posts have indicated that SS, Medicare, defense would all need big cuts for that to work.

So, in my usual helpful way ( ), I'll answer a question with a question:

Look like 1965~1980 were closer to balanced. Maybe we need to look back to those times to see how we got so close?

Though I fear this will bring up partisan comments regarding which parties were in power at which I times and I don't give a flip. Or that marginal rates were such and such, but that means nothing w/o actually knowing what was collected, since Congress also inserted many more exceptions into the tax laws they wrote (see, I'm not calling them 'loopholes').

The 90's were also good from that stance, but I'm not holding my breath for another housing or tech bubble.

-ERD50

 

[ERD50]

Ahh, the poll choices limited my thinking. I have an answer now.

Looking at the graph, I'd say the most important thing related to receipts is the economy. 2005-2007 was on the right track. So, my choice is to:

Cut spending in some reasonable (!) manner, and...

create a positive business environment, so instead of just raising taxes, maybe we can take the same slice from a bigger pie.

Congress isn't good at laying out long term road posts so that business feels confident to invest. They put out this-or-that plan, but who knows if it gets renewed when it runs out in a couple years, or whatever. That just isn't a good environment to encourage investing in a factory or whatever. What's the old saw - the market hates uncertainty? Same applies for anyone making a long-term capital investment - and those are the things that create good paying jobs, and those people will pay more in taxes (amounts). You might not even have to raise rates - heck, it might even be good to lower them. All depends.

-ERD50

 

[dex]

Question--If you believe action is needed to balance the federal budget, what mix of tax increases and spending cuts would you prescribe as being "about right"?

Don't we have to do a little bit more than balance the budget? I'm thinking about the debt. Inflation picks up a bit and the debt interest payments got up. In addition we still will have a 14T+ debt.

Balancing the budget is a good start.

 

[brewer12345]

Whack the ever living cwap out of the defense budget would be a good start.

 

[samclem]

Looking at the graph, I'd say the most important thing related to receipts is the economy. ...create a positive business environment, so instead of just raising taxes, maybe we can take the same slice from a bigger pie.

That's certainly the painless way to get where we need to go. Unfortunately, many politicians (of all stripes) have promised this way out while only delivering more spending.

On the bright side--WRT federal spending, we've got plenty of surplus cargo to throw overboard. It's been a long time since many federal programs had a real thorough scrubbing, and since operational budgets were cut to the bone (any govt folks remember running out of paper and office supplies in the lean years? That's been a long time ago for most agencies).

Even on the revenue side, we're "lucky" to have a tax code which encourages very inefficient use of capital. Clean those up and we might see a significant increase in productivity.

 

[glippy]

The Sacred Cow Of The Pentagon

The deficit is about $1.2T. As a percentage of GDP it is the highest its been since WWII.

It's politically unpopular to talk about cutting defense spending. But it's such a cow. We need to fight religious nut jobs smarter, not harder. And stop worrying about being prepared for world war 3, close most of our foreign bases, stop nation-building, stop paying our country's most gifted and able young people to sit around in a desert on the other side of the world when they could be here at home designing and building dams and bridges, becoming doctors, engineers, farmers, teachers and entrepreneurs.

Instead of spending on our military as much as the next 20 countries combined maybe we could just cut it down to, say, twice, what the next weakest country spends? That would move it from $663B to around $200B. So there's $464B saved. That cuts the deficit to about $750B.

The good news about this budget crisis is that there's plenty of room to increase the income tax. The marginal income tax rate for people making over $400k/year is 35%. During WWII, when the deficit was this high, the marginal tax rate for people making over $200k(1946 Dollars) was 91%. Just letting the "Bush Tax Cuts" expire for the top 2% of income earners, returning the tax rate on income over $375k/year to 39.1% (from 35% currently) in the US would net $100B/year. That gets us down to $650B

I've read estimates that legalizing marijuana could net the Federal Government somewhere between $30B - $100B/year between excise and unreported income taxes and savings on enforcement costs. That gets us down around $600B.

Gradually raise the retirement age to 69 to keep SS solvent.

Oh, and we spend $164B/year on interest on our national debt, that's not very LBYM.

So, there are some fairly painless ways to at least cut the deficit in half from $1.2T to $600B. There MUST be more needless stuff in there...

 

[harley]

Whack the ever living cwap out of the defense budget would be a good start.

Would ending a couple of wars cover it?

 

[DblDoc]

Would ending a couple of wars cover it?

It would be a good start.

DD

 

[donheff]

It is interesting that a substantial majority believe increased taxes need to be a major part of this and yet the Dems are ready to permanently extend the Bush cuts to 90% and the GOP insists on permanently extending them to the last 10%. No one is talking about temporary extensions of all of them. So where will these taxes we come from?

 

[samclem]

It is interesting that a substantial majority believe increased taxes need to be a major part of this and yet the Dems are ready to permanently extend the Bush cuts to 90% and the GOP insists on permanently extending them to the last 10%. No one is talking about temporary extensions of all of them. So where will these taxes we come from?

As one of those willing to see some increases in taxes, I have two observations:
1) The tax increases should be a byproduct of the creation of a more rational tax code. Just raising the rates on top of the same nasty rat's nest of confusing deductions, loopholes, special deals, retention of the AMT, etc is a huge missed opportunity. We need to grow the economy (which is the painless way to increase govt revenue) and fixing the tax code is key to that.

2) The revenue increases should be "part of the deal" for real spending cuts. At the same time.

The fiscal conservatives who see the need for more government revenue to get us out of this mess are right to keep their powder dry. If the government is to take still more of the citizen's private property, it should be in exchange for real cuts in spending and a better tax code. Giving in to tax increases now in hopes of getting spending cuts and tax reform later is not a sound negotiating strategy.

 

[Independent]

Question--If you believe action is needed to balance the federal budget, what mix of tax increases and spending cuts would you prescribe as being "about right"?

Sam, I think your graph would be much more meaningful if it were spending and taxes as a percent of GDP.

 

[Independent]

I didn't vote because I would take "any of the above". If I had the opportunity to vote for someone who had a package that eliminated the deficit (with honest numbers), I'd vote for him/her, regardless of the mix of spending cuts and tax increases.

 

[freebird5825]

A good scrub-down of some of the "opportunities" here might be a good start.
I was an evaluator for a subset of this program while w*rking for a certain agency, and it blew my mind what was put out there for topics and what was proposed and awarded, all at taxpayers' expense.
Many programs were beneficial to US citizens, but some of the others...
Grants.gov - Find Grant Opportunities - Search Results Grant Opportunities

 

[ERD50]

It is interesting that a substantial majority believe increased taxes need to be a major part of this and yet the Dems are ready to permanently extend the Bush cuts to 90% and the GOP insists on permanently extending them to the last 10%. No one is talking about temporary extensions of all of them. So where will these taxes we come from?

Well, the poll has the built in assumption that spending cuts will come with those tax increases. We can't assume that would happen in real life.

If the Dems (or Rs for that matter) showed a proposal that included tax increases and spending cuts to balance the budget, that might be different. If they do have one, it's probably so much smoke and mirrors that it is a joke. At least a tax cut is tangible.

At any rate, I don't think the present tax cut debate in Congress (or extensions of existing levels, depending upon your POV) is a 'balance the budget' issue, it is a 'what will increased taxes do to an already weak economy' issue.

I'm not saying tax cuts themselves are key (maybe a part of it), but as I said earlier, a growing economy will bring in more tax revenue at existing tax rates, and that will increase receipts. We ought to take measures to support that, rather than the easy and static mantra of "raise taxes".

-ERD50

 

[ERD50]

As one of those willing to see some increases in taxes, I have two observations:
1) The tax increases should be a byproduct of the creation of a more rational tax code. Just raising the rates on top of the same nasty rat's nest of confusing deductions, [-]loopholes[/-] carefully written sections of tax code designed to provide excess benefits to select parties as payback for getting elected, special deals, retention of the AMT, etc is a huge missed opportunity. We need to grow the economy (which is the painless way to increase govt revenue) and fixing the tax code is key to that.

...

Fixed it for 'ya -EDR50

 

[samclem]

Sam, I think your graph would be much more meaningful if it were spending and taxes as a percent of GDP.

I looked for a chart like that but [-]after 10 minutes of halfhearted searching[/-] despite an exhaustive research effort I couldn't find one that covered a few decades.

 

[keegs]

I'm not saying tax cuts themselves are key (maybe a part of it), but as I said earlier, a growing economy will bring in more tax revenue at existing tax rates, and that will increase receipts. We ought to take measures to support that, rather than the easy and static mantra of "raise taxes".

-ERD50

ERD.. what planet do you live on?

 

[dex]

I'm not saying tax cuts themselves are key (maybe a part of it), but as I said earlier, a growing economy will bring in more tax revenue at existing tax rates, and that will increase receipts. We ought to take measures to support that, rather than the easy and static mantra of "raise taxes".
-ERD50

That would great and low pain. But, take a look at current budget GDP growth projections used - 4%ish - check the numbers. They are aggressive. Also, all the current issues - deficits, increased taxes become a drag on GDP growth.

 

[tjscott0]

I posted a budget simulator over at TMF boards awhile ago. Below is a link to the post. I cut about a trillion from the budget. Give it a whirl.
TMF: Budget Simulator / Retire Early CampFIRE

 

[ERD50]

ERD.. what planet do you live on?

The planet where things like this are discussed on Internet forums while we all know there isn't a snow-balls chance that anything will come of it. But we discuss it anyhow.

And you?

edit/add: if you want a real-life example of a country on this planet that seems to have a clue about simple tax code and how that makes it easier to run a business, do a lttle reading on Hong Kong. They collect about the same % of taxes to GDP as we do, but their ENTIRE tax code, business & personal is 19 pages long. I'd guess that allows businesses to focus on their business and customers, rather than the non-valued tasks of complying and optimizing their tax payments as they waddle through our literally uncountable number of pages of tax code (I have yet to see a reliable source pin down the number of pages - it seems like counting guppies best I can tell).

further edit/add: What is it you are saying exactly keegs? Are you saying that govt policy/actions cannot affect (both positively and negatively) how much and/or whether a business is going to grow or not? Govt policies do both - endless examples, so I won't bother.



-ERD50

 

[chinaco]

IMO - for taxes... Higher Estate Taxes should be the first tax increase. 50% - 70% progressive tax on Estates over 1.25M per spouse ($2.5M Total) indexed to inflation.

Income taxes should go back to pre-bush tax cut levels.

There will be some spending cuts likely across the board...

I don't like increasing taxes... but it is too late to do much more that it without taking back SS and Medicare from people. That does not seem fair. Especially after I spent a working lifetime funding it!


The thing I am not in favor of is debasing the USD and high inflation. That just destabilizes the economy and hits people on fixed incomes the most.

 

[keegs]

The planet where things like this are discussed on Internet forums while we all know there isn't a snow-balls chance that anything will come of it. But we discuss it anyhow.

And you?

edit/add: if you want a real-life example of a country on this planet that seems to have a clue about simple tax code and how that makes it easier to run a business, do a lttle reading on Hong Kong. They collect about the same % of taxes to GDP as we do, but their ENTIRE tax code, business & personal is 19 pages long. I'd guess that allows businesses to focus on their business and customers, rather than the non-valued tasks of complying and optimizing their tax payments as they waddle through our literally uncountable number of pages of tax code (I have yet to see a reliable source pin down the number of pages - it seems like counting guppies best I can tell).

further edit/add: What is it you are saying exactly keegs? Are you saying that govt policy/actions cannot affect (both positively and negatively) how much and/or whether a business is going to grow or not? Govt policies do both - endless examples, so I won't bother.



-ERD50

Gee ERD...I underlined it for you.

 

[keegs]

Every small restaurant in my area has an ATM and won't take a credit card.

We're losing 350 billion a year to tax cheats. This place is getting like Greece.

What about we start throwing some people in jail for unpaid taxes?