Comprehensively Inadequate

“Fresh” Republican proposals for deficit reduction are  comprehensively unimpressive.  The $2.5 trillion in proposed cuts over 10 years is insufficient; especially the case when you realize that repealing Health Care legislation is 36% of that proposal.  That legislation is not going to be signed by the President and those cuts will not be made anytime soon.  Rand Paul’s proposal doubled that number; at least Senator Paul’s suggestion is getting closer to the target.  (Can I still say target?)  

Harsh reality is that in the face of $1.5 trillion in annual deficits, cutting $250 or $500 Billion a year increases the overall deficit, it just does so more slowly.  The President made fun of multiple agencies involved with the same fish dependant on where it happened to be, extend that example over a broad range of agencies if not all.  When you extrapolate, it’s not funny anymore!  Republicans need to be more aggressive.  They need to say, we know Health Care repeal will encounter either Harry Reid or a veto, so we’re not counting on it.  Here is what we have to do in light of that $900 billion being beyond reach, for the moment.

We need to eliminate about $1 trillion a year, not counting Health Care.  There are three potential sources: entitlement reform, spending cuts and growth in the economy.  Growth in the economy is where a lot of big numbers are but current projections already assume 3% growth.  We need to grow beyond 3% for growth to have a significant impact on projected deficits.  Simple math; the current proposals don’t get it done and there is no one predicting 6% growth anytime soon.

Can you cut a trillion?  Maybe!  Cut non intelligence and defense agencies by an amount that forces agencies to focus on an acceptable, well defined core mission; could be 10% could be 50%.  Legislatively exempt agencies from the legal liabilities of non compliance with the broad scope of legislation and executive direction that is currently in place for each.  Remove the predictable argument; “we can’t stop, you guys (Congress) told us to do it.”    

Social Security needs the rules changed to match demographics.  Retirement benefits at age 67 needs to go on the books now, not in 2050.  A cap on cost of living increases is a must in the short term.  A sliding scale that limits benefits based on net worth versus age and life expectancy is distasteful but required fiscally; financial patriotism perhaps? 

Arguments are sprouting up that it’s all good until 2037, no worries; long time down the road.  That’s not economic, that’s political.  Fact is that we are already in deficit spending for Social Security, more going out than coming in, $45 billion in projected cash shortfalls in 2011.  Fact is that the “cash” that’s been “accumulated” in the system is not really cash; it’s a “Due to” on the balance sheet.  The moneys been spent and IOU’s have been issued by the Treasury which also does not have the cash.  When the IOU”s come due and more debt will be required to pay the benefits.  It’s really not as rosy as some will have you believe when you abandon the creative bookkeeping and concentrate on where the cash is, or in this case is not.  Same with Medicare.    

Medicare is a comprehensive mess and will get much worse under Health Care legislation.  Logic breaks down quickly when it comes to Medicare.  Every politician in the country has pointed to “fraud and abuse” as the answer.  We have a government agency to insure that there is no “fraud and abuse”.  We still have “fraud and abuse” despite political agreement and millions upon millions to the agency that is supposed to insure against it.  Where is logic or performance?  Why maintain confidence in agency capabilities to do what literally everyone agrees they should do, yet remains undone?

Perhaps the answer is to actually increase Social Security benefits, eliminate Medicare, remove competitive restrictions on private insurance companies, guarantee acceptance, create special need pools and let the market work; and, oh yes, one bureaucracy eliminated as unnecessary.

Simplify the tax code!  Everyone in the pool!   Half of Americans paying no Federal taxes does not unify intent and focus.  Not asking for a lot, just a little something from everyone.  The tax code competes with government spending in terms of creating economic incentives and disincentives.  Deals fall apart based on nothing more that tax implications.  States regularly create tax incentives to attract development and jobs.  KIA, BMW and Mercedes for example all invested in auto production based on incentives provided by state governments. 

Tax policy either attracts money and development activity or sends it elsewhere.  It’s not just wages and foreign government incentives; it’s those factors as compared to domestic economics including a broad scope of tax implications.  For a big impact associated with aggressive growth the tax code has to change dramatically.  If we want the $3 trillion sitting on the sidelines to get in the economic game tax policy would do it.  Want people to stop hiding money, want individual growth to be attractive?  Change the tax code.  Eliminate all industry specific incentives and then reinstate the critical ones with transparency and justification.  Tax incentives are not inherently bad if they are justified by economic growth and jobs as opposed to politics.

Secretary Gates has proposed Military spending cuts, bravo sir, your service is laudable.  But there is a political context Secretary Gates must operate within.  As long as resources are focused on threats that don’t prevail anymore we cannot cut further or reallocate resources as necessary without damage being done.   NATO is a dinosaur; Afghanistan has proven that.  Russia is not going to sent tanks through the Fulda Gap but drug lords may metaphorically send them over our southern border.

Foreign Aid, despite thousands of words from “experts”, must be based on values and must be delivered in a more direct fashion.  Foreign aid should be contingent on our executing the goal of the aid as opposed to direct payments to questionable (to be kind) foreign governments.  More jobs!  One must question the $14 billion a year to Egypt and what that has accomplished.  The value to us of aid to Hamas would be, exactly what?  Add to the question aid to Lebanon with Hiz’bAllah in charge; aid to Turkey which is taking a distinct turn to Islamism?  Aid to Africa disappears into the black hole of corruption.   

Reorganization saves money when done properly, as the President pointed out; any business man would agree.  However, creating one big bureaucracy out of two or three small ones is not reorganization done properly.  Attrition is politically expedient but, can we wait that long?  Homeland Security and Intelligence have been merged into massive bureaucracies with questionable results.  Fish like duplication and logical disconnects exist at all levels of the bureaucracy.              

The President made light with his fish story. But it’s just not funny when we provide price supports for tobacco and spend millions to tell everyone how bad it is; pick one!  Price supports for an ethanol product that requires nearly as much energy to produce as it generates is an economic world gone mad, it’s everywhere and almost exclusively a case of politics dominating economic logic.  We eliminate food production and the associated jobs from the bread basket of the California Central Valley but we saved a minnow, hmm, fish again.

A significant economic drain is dependence on foreign energy sources; everyone knows it, hundreds of billions.  However, we refuse to develop what we have.  Hey, Canada is doing the stuff we refuse to do, such as oil sand production and pipeline construction.  Canada!  Spent a lot of time in Canada, not a lot of conservative folks in power there; if it’s OK with Canada and the way they do things, it’s OK with me!

There are unspent stimulus funds of two types assigned and unassigned.  Assigned but unspent funds are counted as spent in unified budget production.  That money is sitting in Federal agency coffers, tens of millions in the Dept. of Education alone which received $80 million.  I would like all of the money back please; assigned or not!

Forget about $14 trillion in debt, it’s much more than that.  Unfunded entitlement mandates push it close to $100 trillion on a cash basis.  Consider also that a 1% increase in interest rates to the government creates another $100 billion in debt service in ten years $200 billion in fifteen years.  A weakening dollar based on debt levels will almost insure that interest rates on government securities will rise.

Consider that $14 trillion in debt is equal to the 2009 GDP.  The $100 trillion cash debt is 7 times that GDP figure.

Someone besides Paul Ryan must make the case that that the crisis is nearly upon us.  The current proposals are comprehensively inadequate and lack the truth telling that is required.  

Each of us also bears the responsibility to face facts and commit to not engage in the “not in my backyard” mentality.  The fact is that each and every one of us must pay some price for an aggressive move to address the potential of fiscal chaos.