03 August 2011

Deficit deals, or are they?

So after a couple months of handwringing, and intense debates over what qualifies as a "tax increase", and intimations that our most significant spending programmes (entitlements/defence) were on the slab for cutting and reform, we got (insert blank).

Right. That's it.

To resolve the American debt crisis, three things needed to happen.
1) Taxes needed to be reformed. This would include for some people, increases in taxes because of exclusions and subsidies that need to disappear. For all the railing the conservative apparatchik does about wasteful stimulus spending, it engages in the most detestable forms of hand waving when it occurs that a) their proposed reforms to entitlements are basically tax increases themselves or b) their protected tax exclusions and subsidies are forms of government expenditure to protect favoured constituencies. The essential nature of the Simpson-Bowles compromise on taxes would have worked for me. Get rid of the HMI deduction and some other tax expenditures (especially corporate welfare programmes), and generally lower rates correspondingly. I would also favour getting rid of the corporate income tax and replacing it by abolishing the distinction between capital gains and income (with perhaps a carve out for direct property sales by individuals and businesses). But since none of this happened even under the most severe circumstances, and indeed, most all of it wasn't even up for discussion at any time, I grow concerned.
2) Entitlement reforms. Particularly with medicaid (block grants), and the reform of medicare and social security into means tested programmes operating as actual social safety nets instead of as middle class entitlements. Progressives rightly fear what would happen if we took these programmes away from the middle class, particularly the upper-middle class (the near universal support they enjoy presently would disappear). Nevertheless in their current form they are unsustainable boondoggles. And depressingly, were never seriously debated. Conservatives had a few proposals floated to reform these (as did the moderate Democrat wing), but none were all that serious and none enjoyed even considerable Republican support. After all, all those old white people who lean right vote also.
3) Defence cuts. After the entitlements, this represents a massive proportion of the budget. Ending or curtailing operations in Iraq and Afghanistan would certainly decrease this expenditure. But so would drawing back our deployed armies in Europe, Asia, and the Middle East. Naval patrols to help deal with piracy in the Red Sea/Horn of Africa region make sense. That's an international concern that directly impacts American interests. And intelligence or even special operations missions dealing with terrorist groups around the globe make sense. Again, an international concern that directly impacts our interests. Neither of these interests require the American public to have a military budget that is roughly half of the global military expense, with our closest allies (NATO europeans, South Korea, Israel) accounting for another ~25%. Even if China, Russia, Iran, North Korea, and Venezuela/Cuba were all to band together somehow into a coherent and cooperative military alliance against us (something that their competing self-interest and global displacement as well as force composition make an exceedingly dubious proposition), and this alliance were to gang up somehow exclusively on America with no international aid to our defence, we would be more than capable of defending ourselves and would probably end up with a couple of new states/protectorates in Cuba for our trouble at our current levels (assuming that nuclear deterrence kept the war conventional, a strong likelihood). What concerns me most with this point is that INCREASES in spending are depicted in the media as DECREASES. While there are real spending dollars (inflation) to consider, even inflation does not increase at the rate our military budget has over the last decade even excluding our active military operations. I would slash this budget to the EU level of about 1.5% of GDP instead of 4%+ as it is currently. But even cuts to the 2.5-3% level would be a significant achievement and go a long way to cutting our deficit with a minimal impact on the real US economy. This too was never up for debate. (Note, there is a proposal to cut almost 350B over ten years from the defence budget if no future deal is arrived on for cuts. I consider this an unlikely prospect that no future deal will emerge with cuts to something else. But it is always possible that the GOP caucus will remain fixed on cutting planned parenthood, NPR, and ObamaCare, and not on things where actual deals are possible. If so, larger defence cuts will be mandated however, a deal which I imagine will motivate enough Republicans and Democrats alike to come up with something because such spending is taboo to cut for political reasons. Even with these relatively large dollar amounts in cuts, the amounts are still very small relative to what is available in the overall defence budget, perhaps 10% would go. Woo-hoo...)

Among other cuts, nothing was mentioned about Homeland Security funding or the War on Drugs. Little was mentioned about eliminating or even reducing agricultural or energy subsidies (some on oil or coal came up, but didn't go anywhere). Wasteful education spending? Nope. Rent controls? (admittedly a usually local concern but often supported directly through the HUD architecture of low income housing subsidies). Not really. And so on down the line.

Instead, a new law came up in the House which effectively requires ISPs to spy on their customers in order to protect against "child predators". All their customers. Not just the ones the police or FBI tell them to keep tabs on. Nor does the law limit authorities' inquiries to child pornography. Any request for information is sufficient and no justification is required. Anybody care to guess where and for what that will be used? In what ways has the PATRIOT act been used for aside from its more explicit supposed use of anti-terrorism? (the list is numerous). This is even less safeguarded than the FBI's use of NSLs under the FISA directives.


Further note: I don't support a balanced budget amendment. Two reasons.
1) The government operates more like a corporation than individual household budget. Loans, often large loans, are par for the course. Reasonable constraints to real spending come in the form of the requirement of paying back such loans, and servicing the national debt can be an especially pricey prospect. The reason entitlements and tax reform must be on the table is to deal not with the immediate and admittedly pressing problem of the current national debt, but to keep the expense of future national debt (as well as swelling entitlement costs) from engulfing the entirety of the federal budget. This was a long-term economic disaster that bond markets and other players have every right be concerned about. The immediate prospect of a default is child's play next to a much more massive government in the US's future defaulting or being rendered unable to perform its basic duties.
2) One of those duties is on some level to operate a social safety net structure. In times of recessions, such safety nets require more funding than is usual and induce deficits. What should be required instead of permanent balancing is that governments should be prevented in "good" times from expending more than they take in. The impetus to spend the cash it is flush with when the economy (and therefore the tax base) grows is very strong. If it spends this money on basic infrastructure (or repairs to such) or on educational reforms, and not on providing money to favoured constituencies and the middle class, then there is at least some form of capital available afterward (physical or human) that can be drawn upon instead in recessionary periods. Spending on tax cuts likewise isn't all that useful. Money should be horded so that it is available when times are bad. For governments at least. Expansion of services when times are good merely means that there are, as now, much larger expectations of government provision when things are bad. That's a huge problem. Something like an unbalanced budget amendment instead makes more sense to deal with the very real problem of counter-cyclical budgeting. Countries like Norway or China or Germany who have budget surpluses, usually from exports and higher tax bases, are more than capable of stashing some of that cash and then expending it on the natural emergencies of any state. Why are we not doing the same? Why was it necessary to cut taxes in 2001 when we still had such a surplus for example?
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