Posted by Kromey at 8:02pm Feb 8 '10Government budgets are monstrously complex beasts, and the projects/departments/etc funded by governments demand money in numbers that would make any human being's head explode (unless you're from Nicaragua). No one is going to be able to offer up a magical silver bullet to balance the government's budget; anyone who says they can is either trying to sell you a bridge or seeking election.
That said, here's my humble approach to a start:
1) Ditch the income tax altogether.
All forms of federal income tax need to disappear. This includes FICA payroll tax, etc. In its place, we would institute a national sales tax, say at around 23% (tax-inclusive rate, similar to income tax; the tax-exclusive rate, which is how most sales taxes are described, is roughly 30%, but it's just 2 ways to look at the exact same number). For the sake of argument, let's just pretend that this number has been carefully researched and chosen to provide the same (theoretical) tax income to the government as the current income tax system does.
But how does this help us close the $1 trillion deficit if it gives the government the same amount of tax income?
The savings benefit here is primarily from two distinct, yet related, facts: The IRS operates on a budget of around $12 billion dollars (FY 2010), and the annual tax collection shortfall (i.e. the amount of money owed to the government in income taxes but never collected) is $350 billion.
By eliminating the income tax, we eliminate some 80% of all tax returns - every single individual filing in the country. What's left is retail outlets and the like collecting this sales tax on behalf of the government and then handing it over to them. So oversight, which ultimately is the IRS's primary job, shifts from every single American and business to solely the businesses. Some estimates say that this means the IRS can be completely eliminated, but I think that's a little naïve; I think a conservative estimate would be that the IRS could operate just as efficiently (ha! I made a funny!) on half it's current budget, so we save $6 billion annually. Just a drop in the bucket when talking about a trillion-dollar deficit, but it's a start.
Also, we eliminate the tax collection shortfall of $350 billion - that's 35% of the deficit right there! Perhaps it's too optimistic though to assume that the entire tax collection shortfall is fixed - let's assume instead that this way we can eliminate 75% of it (over $260 billion; and again, I think this is a pretty conservative estimate), but we're still reducing the deficit by more than quarter!
At the same time, we eliminate the need for complex tax codes that need to be reviewed and updated, as well as eliminate the complex maze of deductions, credits, shelters, and everything else that plagues the income tax landscape - everything that's sold is taxed at the same rate, and that money goes into the government's coffers. Done.
For anyone curious about this approach, I cribbed the whole thing (except the referenced FY 2010 IRS budget) from FairTax.org, although they estimate annual "compliance costs" of $265 billion that would be saved; I'm not really sure where this number comes from, which is why it's nowhere in the above. They also are the "some estimates" that would ditch the IRS altogether, which I shy away from above; they seem to have their act together, though, so if they think the IRS can go away entirely I'm sure they've got something else in mind to enforce the FairTax.
2) Take a heavy-handed axe to social welfare programs.
That's not to say we should axe Medicare/Medicaid, not by any means. But there are some things the government shouldn't be expected to do - like save for people's retirement. Social security needs to go. I'm certainly not cruel enough to just kill it dead right now, and leave those dependent on it suddenly with nothing. It would have to be phased out, but in a way such that those currently dependent upon it and those nearing retirement who's retirement plans have depended upon it would still have what's been promised them, but others would have to save for retirement themselves.
And why should the government save for retirement for us? If we spend our money recklessly at the bar every night, and then don't have enough to fix our car when the engine suddenly dies, does the government leap to the rescue? Does anyone think it should?
No - we all point and laugh and the silly man with no foresight and no common sense about having a financial "safety net".
Why, then, do we go out of our way to pay for that same man's retirement?
Yes, I do realize that it's not a completely compatible analogy; nonetheless, I find the whole notion that the government is saving for our retirement for us ludicrous - I mean, they can't even run an efficient DMV, why the hell should we expect them to be more sensible with our retirement savings than us? Fun fact: Despite the fact that I've paid more into Social Security than I have into my 401(k) (a lot more), my 401(k) would last me a lot longer at retirement right now than my SS disbursements would (according to the SS statement I got last month).
There used to be a time in this country where a man worked for his dollar, and when he got it he saved it until he needed it. He didn't run about taking loans to buy the latest HDTV, nor buying a house with a mortgage he couldn't afford. He would always have money saved away for a rainy day, and when the time came to retire he was prepared for it.
We need to return to that time, and get the government out of our private finances.
3) Cut unnecessary spending, abolish pork spending, and raise taxes.
This Bushism that we can cut taxes while ramping up spending has to go, and it has to go now before we get ourselves beyond the point of no return. As much as I like the extra money I got this year on my tax refund, spending has increased dramatically while taxes have been slashed - this is absolute lunacy, and we have to reverse it from both sides: reduce spending and raise taxes.
Tackling pork is a lot harder to do, unfortunately. I can offer to solutions to it, but it has to follow the dodo into oblivion.
That said, here's my humble approach to a start:
1) Ditch the income tax altogether.
All forms of federal income tax need to disappear. This includes FICA payroll tax, etc. In its place, we would institute a national sales tax, say at around 23% (tax-inclusive rate, similar to income tax; the tax-exclusive rate, which is how most sales taxes are described, is roughly 30%, but it's just 2 ways to look at the exact same number). For the sake of argument, let's just pretend that this number has been carefully researched and chosen to provide the same (theoretical) tax income to the government as the current income tax system does.
But how does this help us close the $1 trillion deficit if it gives the government the same amount of tax income?
The savings benefit here is primarily from two distinct, yet related, facts: The IRS operates on a budget of around $12 billion dollars (FY 2010), and the annual tax collection shortfall (i.e. the amount of money owed to the government in income taxes but never collected) is $350 billion.
By eliminating the income tax, we eliminate some 80% of all tax returns - every single individual filing in the country. What's left is retail outlets and the like collecting this sales tax on behalf of the government and then handing it over to them. So oversight, which ultimately is the IRS's primary job, shifts from every single American and business to solely the businesses. Some estimates say that this means the IRS can be completely eliminated, but I think that's a little naïve; I think a conservative estimate would be that the IRS could operate just as efficiently (ha! I made a funny!) on half it's current budget, so we save $6 billion annually. Just a drop in the bucket when talking about a trillion-dollar deficit, but it's a start.
Also, we eliminate the tax collection shortfall of $350 billion - that's 35% of the deficit right there! Perhaps it's too optimistic though to assume that the entire tax collection shortfall is fixed - let's assume instead that this way we can eliminate 75% of it (over $260 billion; and again, I think this is a pretty conservative estimate), but we're still reducing the deficit by more than quarter!
At the same time, we eliminate the need for complex tax codes that need to be reviewed and updated, as well as eliminate the complex maze of deductions, credits, shelters, and everything else that plagues the income tax landscape - everything that's sold is taxed at the same rate, and that money goes into the government's coffers. Done.
For anyone curious about this approach, I cribbed the whole thing (except the referenced FY 2010 IRS budget) from FairTax.org, although they estimate annual "compliance costs" of $265 billion that would be saved; I'm not really sure where this number comes from, which is why it's nowhere in the above. They also are the "some estimates" that would ditch the IRS altogether, which I shy away from above; they seem to have their act together, though, so if they think the IRS can go away entirely I'm sure they've got something else in mind to enforce the FairTax.
2) Take a heavy-handed axe to social welfare programs.
That's not to say we should axe Medicare/Medicaid, not by any means. But there are some things the government shouldn't be expected to do - like save for people's retirement. Social security needs to go. I'm certainly not cruel enough to just kill it dead right now, and leave those dependent on it suddenly with nothing. It would have to be phased out, but in a way such that those currently dependent upon it and those nearing retirement who's retirement plans have depended upon it would still have what's been promised them, but others would have to save for retirement themselves.
And why should the government save for retirement for us? If we spend our money recklessly at the bar every night, and then don't have enough to fix our car when the engine suddenly dies, does the government leap to the rescue? Does anyone think it should?
No - we all point and laugh and the silly man with no foresight and no common sense about having a financial "safety net".
Why, then, do we go out of our way to pay for that same man's retirement?
Yes, I do realize that it's not a completely compatible analogy; nonetheless, I find the whole notion that the government is saving for our retirement for us ludicrous - I mean, they can't even run an efficient DMV, why the hell should we expect them to be more sensible with our retirement savings than us? Fun fact: Despite the fact that I've paid more into Social Security than I have into my 401(k) (a lot more), my 401(k) would last me a lot longer at retirement right now than my SS disbursements would (according to the SS statement I got last month).
There used to be a time in this country where a man worked for his dollar, and when he got it he saved it until he needed it. He didn't run about taking loans to buy the latest HDTV, nor buying a house with a mortgage he couldn't afford. He would always have money saved away for a rainy day, and when the time came to retire he was prepared for it.
We need to return to that time, and get the government out of our private finances.
3) Cut unnecessary spending, abolish pork spending, and raise taxes.
This Bushism that we can cut taxes while ramping up spending has to go, and it has to go now before we get ourselves beyond the point of no return. As much as I like the extra money I got this year on my tax refund, spending has increased dramatically while taxes have been slashed - this is absolute lunacy, and we have to reverse it from both sides: reduce spending and raise taxes.
Tackling pork is a lot harder to do, unfortunately. I can offer to solutions to it, but it has to follow the dodo into oblivion.
It's not an easy nut to crack - Kromey