Fixing the U.S. budget

In seventh-grade civics class we learned that Congress controls the purse. The fact is they have already spent the money that we do not have. They have so far avoided providing sufficient revenue. They seem surprised that Discover has capped their credit.

The president is in the branch of government called the administration. He or she “administers” only what Congress has authorized.

And yet House Speaker John Boehner claims this is the president’s problem, and Senate Minority Leader Mitch McConnell wants the president to supply his plan.

Hey boys, I think the president’s plan is the unreasonable hope that Congress will do its job. Raise taxes to pay for the toys you have already bought and played with.

Ron Platt
Overland Park

Comments

[John S]

LIT says:

"Revenues down over 14%, yet it's a "spending problem." You Republicans really are kings at only hearing what you want to, no?"

Of course revenues are down LIT. Fewer people are working because jobs have either dried up, gone overseas, or been taken by ILLEGALS. Down revenues are a symptom of the problems. Take care of the problems and the symptom will disappear. Conversely, if you treat the symptom by raising taxes the symptom will only get worse because more jobs will disappear.

[Seth]

LIT -

Feel free to confirm my numbers if you choose. I got them from this site:

http://www.usgovernmentspending.com/federal_spending_chart

Look at the bottom for a table of numbers.

You can get revenue numbers from the sister sister site:

http://www.usgovernmentrevenue.com/federal_revenue_chart

This page gives a really good idea of where spending increased:

http://www.heritage.org/research/reports/2010/06/federal-spending-by-the-numbers-2010

I believe all comparisons I have provided so far are apples-to-apples.

"Is the solution to let people starve and die? (Not trying to be melodramatic there, but asking a serious question)."

Economic freedom with limited government resulted in the largest absolute and most widespread prosperity that this planet has ever known. Societies that collapse after borrowing too much from their kids don't do anyone any good.

I was where you are at one point. All I ask is to keep an open mind.

[pmcw]

LIT, In full context, which you didn't quote, my statement answers your question in part.

[LawyerInTraining]

@dave - Unfortunately it's not as easy as it seems to say "Welp, we've got 14% less revenue coming in, let's just cut 14% across the board." In times of an economic downturn, such as that begun under the previous administration, demand for things such as unemployment checks and other social services skyrocket, as a direct result of the people suffering during that downturn. I suppose discretionary spending, such as wars of choice (as opposed to a war of necessity) could be cut, but then it wouldn't just be a 14% cut to make things balance - it would have to be much more significant because of the programs left untouched. No, your simplistic view just doesn't hold water out here in the real world.

@zeno - I would think a failed banker such as yourself would understand the difference between taxes and revenues, but it appears so please let me explain. "Taxes" would the surcharge levied for whatever reason. "Revenue" is the actual money coming in. So while oftentimes they are interchangable, in my earlier comment they were not. The tax rate is not down 14% (although to your credit, it IS down, contributing to the revenue problem). The actual revenue coming in is down about 14% according to the Heritage Foundation chart I saw. Your attempt to distract from this issue is just "job creator".

@Seth - While I can't confirm your numbers, I'll assume for now they're reasonably accurate. The question we need to be asking is WHY? What exactly is causing this increase? If we can determine the percentage, we can determine what exactly went up. My guess is that some of the social programs play a part, since folks are more reliant on those in times of economic distress. Is the solution to let people starve and die? (Not trying to be melodramatic there, but asking a serious question). Do the current spending figures you're referring to actually include the costs of Afghanistan and Iraq, whereas the prior figures didn't? If so, is that really a fair number to use? My point is that we can't just look at the % in a vacuum - all numbers need context.

@pmcw - "The better measure of tax distribution is how much is paid by the top 10% of the nation's earners - that has increased consistently during the last half century." Does this consistent increase take into account the fact that more and more of this country's wealth is being accumulated at the top, so it would stand to reason that they're having to pay more?

[pmcw]

Steven, I concur - Clinton was a good economic president - he had the wind strongly at his back, but he made good economic decisions. He was also a net tax rate cutter.

During the last half century we've had only three presidents who I think had a clue about matters economic - JFK, Reagan and Clinton. All three were net cutters of tax rates and all three changed tax policy to close loopholes.

The argument about tax rates is a non-starter for anyone who is familiar with tax code. It is ridiculous to cite the top marginal rate of 90% when JFK took office - no one paid it since the code was full of loopholes. The better measure of tax distribution is how much is paid by the top 10% of the nation's earners - that has increased consistently during the last half century. Of course, that also points to another problem - the sad shape of our educational and economic systems has substantially constrained opportunity.

A great book you can read that doesn't promote partisan views, but helps with a better understanding of what works at the street level in any economy is Dead Aid. The lessons is shares about sub-Sahara Africa can be applied to the U.S. very easily.

[Steven Klein]

pmcw -Although we may have different political perspectives, I respect your effort to think more deeply about our current economic problems even if it drifts away from the subject of the letter. Bill Clinton is one of the few politicians of either party who seems to be able to articulate the nature of the complex economic problems we face. President Obama has tried in various forums but has not put together a coherent message. Many other Democratic leaders seem out of their depth. Too many Republicans keep trying to find solutions in the Reagan era(or 1800 or 1860) even as our current challenges despite a few comparable metrics such as unemployment levels are very different. Keep at it.

[Seth]

LIT - Spending for '11 is projected to be up 28% from '08 and up 40% from '07.

Even with a 14% drop in revenue, it does appear to be more of a spending problem.

It's also good to note that the drop in revenue came while tax rates remained largely unchanged, so the revenue drops was caused by the drop in the economy.

I'd rather get revenue back up by letting the economy come back rather than further snuff it out with higher tax rates.

By all means, however, if you feel like paying more taxes, nobody is stopping you.

Here are the instructions:
http://fms.treas.gov/faq/moretopics_gifts.html

[pmcw]

The problem is economic growth - that problem, as is almost always the case with economic problems, was created by Washington and they are doing nothing at all to fix it.

There was a time when America was the economic growth engine of the world. That changed officially in 2006. According to U.N. data, the aggregate economic growth of emerging nations contributed more to worldwide economic growth than the aggregate growth of developed nations in 2007. This marked a sharp and permanent change in the world's economic landscape.

To a great extent, the emergence of these new economies was driven by a combination of changes in regulatory and tax policy that favored capitalism and, with that, more efficient use of resources. These changes were driven partly by American influences and, more than you think, subsidized by American tax and regulatory policies.

A country's wealth is measured by the abundance of its resources and how efficiently it monetizes those resources. There are two forms of resources. One form is the vast set of natural resources like oil, coal and metal and environments conducive to the growing of crops and raising of cattle. Countries like Saudi Arabia that are rich in natural resources can get away with squandering human resources. Human resources are measured in skill, strength and ability. Those properties have had varying values over the past centuries, but today are most heavily influenced by the quality of a country's education system. Tax and regulatory policies control how efficiently these policies are put to use.

There are clear and definable reasons why the economies of most developed nations are failing and those of emerging nations are flourishing. I don't know the policies of other developed countries in the world well enough to comment about them in meaningful detail, but I know the policies of America well as the more critical policies in some of the emerging economies.

In America we've failed to acknowledge how the world has changed. Wall Street is mystified every quarter by the value of what Intel ships into emerging markets to the point after eight straight quarters of missing estimates, Intel still trades below the average value of the companies on the S&P500 index. Our government is also evidently mystified. If it wasn't it would have adapted its regulatory, tax, and education policies as a decade ago when the world economy showed clear evidence it would change rapidly.

Through tax and regulatory policy we have limited our ability to extract, leverage and otherwise use our natural resources to their fullest. This has not only made us poorer, it has made some countries with policies that are not particularly friendly to America richer.

Our policy towards education has limited our ability to produce the scientists, inventors as well as the quality businesspeople we need to optimize the growth of our domestic economy. Worse yet, we've made it harder and more expensive for those who qualify the time, energy and money necessary to grow our domestic economy to its fullest potential. In short, we've added huge helpings of not only risk, but also uncertainty to the "risk adjusted return on investment" equation.

At the same time we were diminishing the value of our natural and human resources, we were encouraging companies to transfer the creation of intellectual value to other countries; mostly those that had adopted capital-friendly policies and worked to cultivate the needed resources.

Through the construction of a de facto tariff on U.S. investment by U.S. based companies, our government has encouraged companies to invest in the creation of value off-shore. We have and still are subsidizing the creation of the world's emerging economies. That is why these countries have and would continue to take our debt so long as we don't screw up. At the root of this is our corporate tax code - any tax placed on U.S. profits earned abroad is a tariff on U.S. investment by U.S. companies - foreign companies don't pay this tax. If the "loophole" is closed, we'll have more foreign companies - some may go by the names IBM, Hewlett-Packard and Dell.

A popular argument furthered by the mainstream media is these bad corporations are transferring labor jobs overseas. As the world learned to transfer the complexity of labor from man to machine labor became a fungible commodity. The point here is no one is going to stop fungible labor from seeking its economic balance. Thomas Friedman, in his book, "The world is Flat," states clearly, "You do not want a fungible job." Therefore, a country that is interested in capturing labor in its economy, but is not positioned to compete on price, must focus on training labor for localized projects that cannot move (fix a car, build a house, etc.) or train labor to provide unique values that are not fungible. In the U.S., we've tried to maintain unskilled labor via policy versus training for value.

[zeno]

No Gary, I recognize that higher rates do not always mean higher revenues. My point was just that libs can't say taxes anymore. But when they say revenues they mean higher taxes.

[pmcw]

Liberals often confuse percentages and dollars. They should try going to the bank and attempt to deposit some %. Maybe the cashier would help them understand the difference. ;o)

[Gary]

Zeno, I think you are referring to equating higher tax rates (not taxes) with higher revenues. In the real world, over time, increasing tax rates may produce either higher or lower tax revenues. The same is true of lowering tax rates. The trick is to find the proper balance. Congress is not very good at that trick.

[zeno]

BTW I love the liberals on this blog upset at Repubs calling the rich "Job creators".

But I see one of them is right in line with calling taxes "revenues".

[zeno]

Dave, what you need to do according to LIT is continue to spend more of your own money and then go and force your neighbors to give you more of their money. OH wait that would be illegal for you and me.

[dave]

if revenues are down 14%, please tell me great one LIT, is spending down 14%. no is the correct answer. sounds like we have a spending issue to me. in my house, when revenues are down, so is spending.

[LawyerInTraining]

Revenues down over 14%, yet it's a "spending problem." You Republicans really are kings at only hearing what you want to, no?

[John S]

The president, through the treasury, decides what to pay and what not to pay if we don't have enough money to pay everything. If we cut spending the problem is solved.

[pmcw]

Actually Ron, you have it all wrong. That is not how the process works at all. If you are interested, here is a street-level outline:

http://en.wikipedia.org/wiki/United_States_budget_process

However, as noted previously, the problem is spending. A capitalistic system can't work well if government spends in excess of 20% of its GDP. In capitalism we depend on a reasonably efficient allocation of capital. What happened in both the bubble of 2000 and 2007 was an inefficient allocation of capital and we paid the price. To a great extent, both of those inefficiencies were driven by government policies. However, rather than admit its sins, government pins blame on others. What we're seeing government attempt to do here is directly control yet another inefficient allocation of capital - this one is much worse than the last two.

[pmcw]

Or, here's a novel idea - don't spend money you don't have...