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Washington: Not Serious About the Deficit

Posted by Larry Doyle on November 30, 2012 6:58 AM |

Where is Pete Peterson when we really need him?

While America is fed a daily diet of fiscal diarrhea from the politicians and their spokesmen, Peterson remains one of the few adults in and around Washington when it comes to the topic of confronting the fiscal cliff and more importantly our fiscal deficit.

“Fiscal diarrhea, LD? Did you really have to go there, especially on a Friday morning?”

Yes, fiscal diarrhea. How else is one to describe the package and remnants left for us recently by Treasury Secretary Tim Geithner, as highlighted in this interview with Bloomberg’s Al Hunt,

In the course of a conversation I had just the other day, I mentioned that I firmly believe many in Washington on both sides of the aisle have no real interest in addressing our “out of control” spending and subsequent fiscal deficit. Geithner and his pals would point to the debt ceiling as a hindrance. Over and above that, I have often heard that even after the debt ceiling debacle of summer 2011 and the resulting credit downgrade of the United States, our borrowing rates have only come down. If that is the case, then why worry about a self-imposed debt ceiling and the deficit?

Well, to that question, I would respond with the same question the Lord posed to Noah, “how long can you tread water?” That is, how long do we want the Federal Reserve to print money to fund our deficit while simultaneously monetizing our debt, devaluing our currency, and ultimately our quality of life. We are well on the way to all of these scenarios playing out.

While the pols will play politics and continue to treat us like that bevy of mushrooms, Peterson continues to bang his drum about this growing problem. In fact, I would more than welcome that we tell the clowns to step aside and allow Peterson to control the reins on these issues.

Pete Peterson is founder and chairman of the Peter G. Peterson Foundation, a nonpartisan organization dedicated to raising awareness of America’s long-term fiscal challenges and promoting solutions to ensure a better economic future. The Foundation works with leading thinkers, policy experts, elected officials, and the public to build support for efforts to put America on a fiscally sustainable path.

What does Peterson think we should do? As stated back in 2010,

Ideally, the country should raise as much government revenue as possible from a progressive consumption tax. Such a tax can be designed so that it won’t overly burden lower-income families but will raise significant revenues and increase our savings rate.

However, given political realities, it is not likely that we could enact a progressive consumption tax that would raise sufficient revenues to meet our needs. Therefore, I would initiate such a tax in conjunction with a simplified income tax (that would have far fewer corporate and individual credits and deductions)—thereby allowing for lower individual and corporate income tax rates.

Finally, we should implement a carbon tax that would reduce our dependence on foreign oil and lending, while improving the environment.

On the spending side, the country needs to address outdated and bloated programs. Why do we spend more on defense than the next 14 countries combined? We should reinstall the tight budget controls that were used successfully in the 1990s, such as caps on discretionary spending and strict pay-as-you-go rules.

Still, the brute fact is that Social Security, Medicare and Medicaid are projected to account for 100% of CBO’s projected long-term growth in spending (other than interest costs). With so many more elderly living much longer than ever, we have to ask: If all of us, including the relatively well off, are on the wagon, who is going to pull it? To meet these trillions of dollars of entitlement obligations, we would need to double federal taxes. Wouldn’t that be generational theft?

In my view, any reforms to these vital programs should include reductions in benefits for better-off Americans, including options such as raising the payroll cap and making wage and price indexing of benefits more progressive. We should also gradually increase the retirement age for the able-bodied and index it to longevity.

So, Barack, John, Tim and others, STEP ASIDE. Let Pete Peterson clean up the diarrhea left by all of you.

Sorry but that was all too necessary.

Navigate accordingly.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • john halsey

    LD-please……… why are we evening thinking about the fiscal cliff while Barry is vacationing in Hawaii? Burn baby burn!!!!

    • LD

      John,

      I am increasingly coming to grips with the fact that the best path for our country may very well be to go right over the cliff. Do it for the kids and expose the clowns in Washington for what they really are.

  • Peter Scannell

    “In my view, any reforms to these vital programs should include reductions in benefits for better-off Americans, including options such as raising the payroll cap and making wage and price indexing of benefits more progressive. We should also gradually increase the retirement age for the able-bodied and index it to longevity.”

    Stunningly uncomplicated and reasonable!

  • Bob

    This recent article in The New York Times would seem to agree with Mr. Peterson’s assessment.

    Many Americans may find this hard to believe, but the United States already has one of the most progressive tax systems in the developed world, according to several studies, raising proportionately more revenue from the wealthy than other advanced countries do. Taxes on American households do more to redistribute resources and reduce inequality than the tax codes of most other rich nations.

    But taxation provides only half the picture of public finance. Despite the progressivity of our taxes, according to a study of public finances across the industrial countries in the Organization for Economic Cooperation and Development, we also have one of the least effective governments at combating income inequality. There is one main reason: our tax code does not raise enough money.

    This paradox underscores two crucial lessons we could learn from the experience of our peers around the globe. The first is that the government’s success at combating income inequality is determined less by the progressivity of either the tax code or the benefits than by the amount of tax revenue that the government can spend on programs that benefit the middle class and the poor.

    The second is that very progressive tax codes are not very effective at raising money. The corollary — suggested by Peter Lindert of the University of California, Davis in his 2004 book “Growing Public” — is that insisting on highly progressive taxes that draw most revenue from the rich may result in more inequality than if we relied on a flatter, more “regressive” tax schedule to raise money from everybody and pay for a government that could help every American family attain a decent standard of living.

    Consider government aid for families. According to the O.E.C.D. study, our Temporary Assistance for Needy Families is the most progressive program of cash benefits for families among 22 advanced countries, accurately targeted to serve the poor.

    But American family cash benefits are the least effective at reducing inequality. The reason is that they are so meager. The entire budget for cash assistance for families in the United States amounts to one-tenth of 1 percent of the nation’s economic output. The average across the O.E.C.D. nations is 11 times bigger. Even including tax breaks and direct government services, we spend a much smaller share of our economic output on family assistance than almost any other advanced nation.

    The same pattern can be found across a range of government programs. The reason is always the same: their relatively small size. Over all, government cash benefits in the United States — including pensions, disability, unemployment insurance and the like — contribute about 10 percent to household income, on average, according to the study. The average across industrial nations is twice that.

    Our budget reveals a core philosophical difference with other advanced countries. In the big-government social democracies like those of Western Europe, government is expected to guarantee a set of universal public services — from health care to child care to pensions — that are considered basic rights of citizenry. To pay for this minimum welfare package, everybody is expected to contribute proportionately into the pot.

    Government in the United States has a different goal. Benefits are narrower. Social Security and Medicare follow a universal service template, but only for older Americans. Other social spending is aimed carefully to benefit the poor. Financed through a more progressive tax code, it looks more like charity than a universal right. On top of that, our philosophical stance virtually ensures a small government.

    Progressive taxes make it hard to raise money because they distort people’s behavior. They encourage taxpayers to reduce their tax liability rather than to increase their pretax income. High corporate taxes encourage companies to avoid them. High taxes on capital income also encourage avoidance and capital flight. High income tax rates on top earners can discourage work and investment, too. So trying to raise a lot of money with our progressive tax code would probably not achieve the goal and could damage economic growth.

    Big-government social democracies, by contrast, rely on flatter taxes to finance their public spending, like gas taxes and value-added taxes on consumption. The Nordic countries, for instance, have very low tax rates on capital income relative to income from work. And they have relatively high taxes on consumption. In Denmark, consumption tax revenue amounts to about 11 percent of the nation’s economy. In the United States, sales taxes and excise taxes on cigarettes and other items amount to roughly 4 percent.

    Liberal Democrats have long opposed them because they fall much more heavily on the poor, who spend a larger share of their incomes than the rich. But these taxes have one big positive feature: they are difficult to avoid and produce fewer disincentives to work or invest. That means they can be used to raise much more revenue.

    Public finances are under strain today on both sides of the Atlantic, as governments struggle to cope with our long global recession and the aging of the baby boom generation. In Southern Europe, the pressure to pare back universal welfare systems is intense. In the United States, political leaders on both sides of the partisan divide have realized that even our relatively meager package of social goods cannot be sustained with our slim tax take.

    But the United States has one option that most of Europe’s flailing economies do not. Its tax revenue is so low, comparatively, that it has more space to raise it. A more efficient, flatter tax schedule would allow us to do so without hindering economic activity.

    Bruce Bartlett, a tax expert who served in the administrations of Ronald Reagan and George H. W. Bush, told me last week that he thought federal tax revenue could increase to 22 percent of the nation’s economic output, well above its historical average of 18.5 percent, without causing economic harm. If President Obama tries to go down this road, however, he may have to build a flatter tax code.

    Combating Inequality May Require Broader Tax

  • Huckleberry

    Peterson wants to dismantle the New Deal. And this is somehow “non-partisan”?

    And I ask again — and if someone can answer I would appreciate it — where was the great patriot Peterson in 1943-45?

    Consumption tax? Please. And while we’re at it: Hands-off the income tax, it’s fine where it is. Hell, I’d be willing to lower it — across the board — provided we institute a transaction tax, raise the capital gains tax, eliminate the mortgage interest deduction for homes over $150,000 a year, and institute a 90% estate tax for estates over $5 million.

    • LD

      What makes you think we should have any estate tax at all? Why should Uncle Sam be entitled to tax assets and capital that has been taxed at least once if not more than that one more time upon the death of the individual who most likely earned and saved the funds in the first place?

      • fred

        LD,

        This is where you and I part company somewhat.

        Let’s face it, Uncle Sam has the right simply because he is Uncle Sam; it is the will of the people that has the power to give or change that right given to Uncle Sam through our governing mechanism.

        In principle, I agree with your asertion that the person accumulating the wealth should be able to avoid double taxation of principal, I will also extend that belief to his or her spouse, who one might argue assisted in the wealth accumulation, if as nothing more than an advisor, confidante, or accessory.

        Where we part ways is the idea of future generations benefiting exclusivley from wealth they had no part in accumulating.

        I do however, support the idea of a person being able to build and pass down a working business ownership interest to his/her children as long as they maintain active participation.

        I guess I would therefore be highly supportive of an increasingly progressive generational estate tax on inherited financial assets.

        If nothing else, maybe we can avoid untold future generations of Kennedys, Bushs and hiphenated Obamas from dominating the political stage promoting “veiled” agendas that always end up protecting generationally inherited wealth.

        • LD

          Fred,

          The WSJ writes on this topic today and look what Louisiana’s Democratic Senator Mary Landrieu has to say,

          “This particular tax is inherently unfair,” Ms. Landrieu said,

          Plan to Raise Estate Tax Divides Democrats

      • Peter Scannell

        Insult to the ultimate injury.

  • LD

    The president’s ‘compromise’ proposal indicates he is following the advice of his advisors to let the upcoming tax increases go into effect. This has been their plan all along. The advisors believe the president can convince the public that Republicans are responsible for the tax increases. Once he does, the president will not only be able to dictate who receives breaks from the new higher tax rates, but he will also be able to keep much of the new revenue to fund additional government programs.”

    Robert Genetski
    Policy Advisor, Budget and Tax Policy
    The Heartland Institute

    “Federal spending is up more than $1 trillion in the last five years. Economist Peter Morici has pointed out that to keep up with inflation it needed to rise only $360 billion. More than $666 billion is new spending. That’s the problem. Raising taxes and spending is no way to solve a problem that’s been caused by too much spending.

    “And the attempt by the White House to raise the debt limit instead of Congress indicates President Obama apparently thinks he was elected emperor. The constitution President Obama has sworn to uphold and defend puts spending and borrowing decisions in the hands of Congress. It would be nice if Congress were to fulfill its duties and assert its powers rather than relinquish powers to create an imperial presidency.”

    Steve Stanek
    Research Fellow, Budget and Tax Policy
    The Heartland Institute
    Managing Editor, Budget & Tax News

    • fred

      Imagine the damage an “enemy state” could do with a simple stealth email planting attack, it could keep Washington buzzing for years as “Rome” burns to the ground.

  • LD

    A massive power grab with NO regard for managing our ENORMOUS fiscal deficit?

    Under the new Obama proposal, the president would be able to increase the debt ceiling without seeking congressional approval. Lawmakers would still be able to vote against an increase but Mr. Obama could then veto that move, and it is extremely unlikely that Congress would be able to sustain the two-thirds of votes necessary to override a veto.

    Senate Finance Committee Chairman Max Baucus (D., Mont.) said he supported the White House’s proposal, calling the current system that requires period congressional approval “anachronistic….we’ve already voted on spending and revenue.” He said Congress should “repeal” the current system and replace it with something else. House Minority Leader Nancy Pelosi (D., Calif.) also said she backed the White House’s plan.

    White House Debt Ceiling Offer Splits Lawmakers

  • Randee

    The Republicans do not understand that on Election Night the American people spoke. We want higher taxes on the wealthy. I wish we could raise taxes to 60, 70, 80 percent on the wealthy, most of whom inherited their money or won it in lotteries. Redistribute, redistribute, redistribute.

    • LD

      You have the wrong blog. This is “Sense” on Cents not “Total Nonsense”.

      You are welcome to hang here but are you sure that you did not somehow get misdirected while looking for this link?






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