Thursday, July 22, 2010

The Massive Compromise of 2011 We Need

 "But with respect to future debt; would it not be wise and just for that nation to declare in the constitution they are forming that neither the legislature, nor the nation itself can validly contract more debt, than they may pay within their own age, or within the term of 19 years?"  -Thomas Jefferson, September 6, 1789

Maybe we should listen to Mr. Jefferson, don't you think?

Don’t read this post if you are not completely serious about reducing these gargantuan federal budget deficits and the national debt for us and our children before they do irreparable harm to our economy and nation.

Don't read this if you still believe that Santa Claus drops presents down the chimney at Christmastime; the Easter Bunny really lays Easter eggs or that we can: A) cut taxes a lot more AND B) not reduce spending or make major reforms to our entitlement programs and come out of this all right. 

And please don’t read this if you think we can just spend whatever we want whenever we want without incurring some big-time consequences down the road as a nation.

Now that we have winnowed the audience down to perhaps a handful of responsible adults out there, let’s think honestly and openly about how we can get this thing solved once and for all.  Then we can all go on about the rest of our lives without ever hearing anyone talk about the ‘federal budget deficit’ again. (Lord! Let It Be So!)

Just one final reminder of just how seriously incompetent we have been as a nation over the past 30 years:

We are the very first generation of American citizens (‘We’re #1!’ ‘We’re #1!) who have rung up such an enormous debt without fighting a major war to:  gain our  independence (1776-1781); keep our nation intact (1861-1865) or save the world from megalomaniacal madmen like Hitler (1941-45).

Even during the Great Depression, we ‘only’ ran up the national debt to 35% of a crashing GDP.  We now have a debt load at 80%+ of GDP…and still growing .

Here are some over-arching principles we would like to see going forward:

  1. Let’s take corrective actions today in one fell swoop and correct our fiscal imbalances…before the Chinese and Japanese stop buying our debt and force us to make these same decisions we need to make on our own without any foreign country dictating to us what to do.
  2. Let’s set a course of fiscal sanity that will last us not through the end of the next fiscal year, but through the whole century so our kids and grandkids can get a chance to ‘secure the blessings of liberty’ as promised to them in the Constitution.
  3. Let’s adopt an attitude that the federal government should be limited in scope and allow state and local governments to fund and administer programs tailored to their specific needs.
  4. Let’s return to the concept that federal assistance, in any form or manner, should be reserved to very narrow dictates of providing for the common defense; providing for some semblance of the common welfare for the nation as a whole, and helping to provide for people who really can not provide for their own selves or families for whatever physical, mental or sociological reason there might be.
  5. People who have the means and wherewithal to provide for themselves will not be included in any federal entitlement program going forward.  The Founders never envisioned billionaires such as Warren Buffett or Bill Gates drawing a ‘measly’ $3000/month from Social Security or being subsidized to the tune of $12-15,000 per year for ‘mandatory’ Medicare Part B coverage like the average senior.
  6. Use the tax code to raise funds solely for the purpose of paying for federal programs we approve of and have in law, not to punish or advantage any one group of people versus another.

Actions to Take:

  1. Establish a target of 19% of GDP for federal tax receipt in total (since that is what is has been close to for the past 30 years anyway)
  2. Delay the expiration of the Bush tax cuts under current law for one year.  (Obama is going to veto any complete repeal of these tax cut expirations anyway so why not use it in some form of a deal?)
  3. Raise the eligibility age of SS and Medicare to 70 in 3-month increments starting in 2011. We could have SS at 70 by 2023 and Medicare at the same threshold by 2026. (if you don't let the Bush Tax Cuts expire, you might as well advocate raising both threshold ages to 80 tomorrow morning because you would have $3 Trillion more to cut in spending over the next decade)
  4. Transition to a consumption tax to replace, not augment, the current failed income/corporate/payroll/estate and excise tax system starting in 2016. (no income tax/no tax loopholes or deductions to protect.  Pay taxes on what you buy and consume/No hindrance to saving and investing)
  5. Restore PAYGO; entitlement spending increases have to be offset by entitlement spending decreases elsewhere or tax hikes somewhere; tax cuts have to be offset by entitlement spending cuts and discretionary cuts for the duration of the tax cuts and their effect on baseline projections; discretionary spending hikes have to be offset by discretionary spending cuts elsewhere.
  6. Establish a hard cap on all discretionary spending, including defense and homeland security, for the next 5 years almost as if a CR (continuing resolution) were passed at the end of each fiscal year to keep funding at the previous year's levels.
  7. Get Congress take one 2-year session to analyze and evaluate every single federal program and decide which are working and which are not.  And then produce a bill to eliminate all programs that are not working and fund the ones that are working at their minimum effective level.
  8. Pass a balanced budget amendment (with war/economic hardship exceptions) to the Constitution as Mr. Jefferson suggests above.
We don't like higher taxes any more than you do.  But we fear continued accumulation of  humongous and dangerous levels of national debt much more.  Particularly when the real danger is compounding interest payments on the national debt when we know that the only direction for interest rates to go is 'up' from their near-zero levels of today.  We are now spending close to 12% of our budget on net interest, or $400 billion in FY 2010. 

What happens 'when', not 'if', interest rates go to 5%, 7%, or 10%+?  We will be looking at net interest payments of over $1 trillion...per year...forever.

Here's what we know about taxes: they can be raised or lowered by the legislative process in a new Congress every two years.  So if they go up as a result of the Bush tax cuts expiring, they can be reduced one day when the deficits look like they are under control again.

But paying ever-escalating amounts of interest payments on a continually expanding debt can not be changed by legislative fiat.  Once interest payments hit the 'tipping point' of out-running a nation's (or a business or an individual for that matter) ability to make the debt service payments, 'that is all she wrote'  if you look at history even in a passing manner.

And we think that is a devastating possibility no one wants to even come close to messing with.

We didn't say this 'Compromise' was going to be 'easy' or 'a marginal step' or 'an iteration'; we said it was going to be 'massive' and it is.  But it would have the greatest chance of returning our federal budget to balance in the shortest amount of time and prevent our children from desecrating our tombstones after we slip these mortal coils of earth.

Because if we don't do this, they will...and it will be deserved.

      4 comments:

      1. This will be on LeftcoastRebel.com as well as AlliedLibertyNews this afternoon. The only thing I think I would change is item #8 I am not sure 2 years is enough time... But I too would like to see them do nothing but repeal and eliminate laws and regulations for a whole session...

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      2. 'preciate it, Congressman Kook!

        Speaker of the House Joe Cannon once said the best Congress would be the one that passed absolutely nothing and went home.

        I would rather them repeal and reform before going home to be honest about it.

        what tax-cutters and big spenders (some people are in both camps!) do not understand or care to acknowledge is that debt 'kills' republics far many more times in history than higher taxes and less spending 'damage' the economy.

        Higher taxes would be a 'flesh wound' compared to the devastating effects of paying $1 trillion in annual interest costs on never-ending debt.

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      3. What's magic about delaying the end of the Bush tax cuts? If it's a good idea a year from now, it's a better idea today. There's no evidence that the economic environment will improve significantly over the next year, and it may very well get worse.

        End the war on drugs and the war in Afghanistan and you're pretty much have all the compromise you need.

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      4. Memories are short. Remember the mid nineteen eighties when interest rates hit 20%? It was a killer to small business in particular and the entire economy in general. Thank you, Jimmy Carter.

        Then a fellow by the name of Ronald Reagan came along with his strong belief that, quote, “government is not the solution to our problem; government is the problem”

        I would argue that statement is as true today as it was then. The left has railed on this statement for years saying it is everything that is wrong with conservative thinking. Now they have a true believer in huge government in the White House and he has a band of leftists backing him in the House and Senate.

        But one thing puzzles this old country boy; how come all these wise people with their Harvard degrees, advanced education and superior intellect do not or will not understand a basic rule of economics; nothing can be sustained over a long period of time that habitually spends all its assets.

        They also do not seem to understand that all government funds have to first be earned in the private sector. Government produces nothing in terms of legitimate revenue. The one exception might be the US Mint as it is basically a metal stamping business. They charge a fee called “seigniorage” on the coins they sell to the fed. This is actually a tax, however it generates a “profit” for the mint. This past year that amounted to $427.8 million in seigniorage.

        In the words of a successful, but not necessarily famous farmer, my Dad, “You cannot spend more than you make, it’s just that simple.”

        The plan laid out by Mr. Hill is common sense, by the way common sense is also not understood and is outlawed on Capitol Hill as well, would go a long way toward getting this country back on track.

        It’s up to you young folks to pick up the flag and fight the good fight.

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