Proposed Budget Balancing Act

You will have noticed the usual hysteria that accompanies any report here in the US. Even before the ink is dry, pundits from left and right lambast the report so as to blunt its effect, or preferably, to illl it off before it has taken its first breath.

Today’s release is no exception. The Fiscal Commission assembled by Obama back in the balmy days before last week’s election defeat is not due to send out anything final for a while yet. But the co-chairs of the committee have seen fit to throw gasoline on the Tea Party fire by presenting what they euphemistically call a chairman’s draft. This means that the committee as a whole has not voted on the report, and given the intensity of today’s reaction they won’t. So for all intents and purposes whatever is in the report will be forgotten and buried under an onslaught of ideological hate mail.

For the record they didn’t solve anything. So the imminent disappearance of the report will be no great loss.

What did they suggest?

A fairly strong attack on Social Security. Mainly by raising the retirement age. This makes sense if you are wealthy, but not if you are poor. The key problem to solve is that richer people are the ones living longer, so talk of demographic shifts being caused by greater longevity need to be put in context. The expected post retirement lifespan of a high income person has risen three times as fast as someone at the bottom of the wage scale. Since Social Security represents less percentage of a high income retiree’s income, it is anti-social to raise the retirement age equally and thus impose a burden on the poor who are not going to draw benefits as long as the higher income earners who need it less. Since this is a relatively complicated conundrum to fix, and since the left gets hysterical every time the retirement age is mentioned, I doubt we can find an easy middle ground.

Besides, there is no urgency in the need to shore up Social Security. All that doomsaying is simply political window dressing. The Trust fund is secure for years to come, and all we need are minor tweaks in order to solve all problems that might come up. It is clear that a higher retirement age will be part of any long term policy change, as will lifting the cap on incomes for payroll tax purposes.

So we are back to the same old battle lines: the Republicans want to destroy Social Security – which is why they fib all the time about its financial strength – and the Democrats still have enough muscle to stop anything radical in its tracks.

This part of the report is thus DOA.

Worse: the report pretty much ignores Medicare and Medicaid. There are relatively minor changes suggested, but in view of the fact that health care is our number one budget problem I had expected to see more. This avoidance of the “big nut” is typical of our politics. Everyone is still reeling from the hatred of last year’s health care reform effort, and with the Tea Party now setting the GOP agenda it is hard to see how we can make any kind of progress. The longer we postpone the worse it will get, but there seems to be no will to act.

Without lowering the rate at which health care costs are escalating, and in particular, without containing those costs as the baby boomers all get old and sick, our budget imbalance will continue to grow out of proportion to our economy.

The report also dared to venture into the tax code by making some fairly sweeping suggestions about tax rates, deductions and credits. The suggestion that caught my eye most was that of lowering the tax brackets substantially to lower taxes, but then offset that by eliminating most if not all deductions. If this was a tax neutral suggestion then I applaud it. The US tax code is absurd in its incomprehensible density and length. It is an urgent task to cut the red tape back to manageable levels. It won’t happen of course. Our political system is driven not by sense but by lobbyists with each group determined to defend its tax breaks. Since our politicians are paid for by these lobbyists I see no reason for any action to occur.

So look for more huffing and puffing from grandstanding politicians from both camps, and then no action.

If I sound cynical about American politics then so be it. The system is corrupt and rotten to the core. It reminds me of the great quote from Viktor Chernomyrdin, the late Prime Minister of Russia: “It has never been like this and now it is exactly the same again”. Or even better, his summing up of the progress towards democracy in post Soviet Russia: “We wanted the best, but it turned out like always”.

Gridlock looms despite all the criticism, anger, hope, and puffery.

Moving on with that report:

There were major suggestions to whack away at government. Things such as eliminating 200,000 jobs. Combining departments to rationalize expenses etc. Some of these things make sense, but in the hands of the Tea Party led GOP they probably spell chaos. These are the people who call city organized trash collection in Arizona a socialist plot. I doubt they will have much more sense at the Federal level.

Lastly, of course, is defense.

America has never de-militarized after World War II. Prior to that the notion of a large standing army was anathema. Now it is a patriotic duty to bleed the economy dry in order to maintain the world’s largest offensive force ever known. Eisenhower’s warnings will never be heeded and the industrial military complex will roll on until its weight breaks the economy’s back. Yes the report made some useful cut suggestions: major withdrawal from Europe – which essentially boils down to making the Germans cover the bill for their own defense. Plus the elimination of a few of the more egregious boondoggle programs that litter the budget – weapons that will never work, and duplicate versions of planes for each of the Navy, Air Force and Marines. I have always advocated abolishing the Air Force anyway and combining it with the Army. That would accomplish two things simultaneously: it would cut costs, and it would reduce the impact of the Evangelical preachers who dominate the Air Force academy. It won’t happen, but at least we can think briefly of the day when the US is not a militaristic power first and foremost.

So the report has lots in it. None will be introduced as policy.

No one is serious about our deficit. Despite the hair pulling.

My view is that the debt isn’t an issue anyway. We can afford it. If we are serious we will let the Bush tax increases come into force in some way after the crisis abates. Then we will tackle health care and defense. Those alone are what is needed.

Meanwhile we need to stop obsessing over the near term deficit: it is a function of the crisis. Plus running a deficit is fine as long as it never grows faster than GDP. Bush’s recklessness was to break that rule and plunge us into chaos.

So ignore all the media hysteria about today’s report. Nothing much will come of any of this.