The Incredible Disappearing Deficit

While we weren’t looking the political discourse has changed.

We are literally staring down the barrel of a huge across the board cut in federal spending from the super committee, and the best that the Republican Presidential candidates can do is talk about reforming the tax system?

The deficit was the issue that got them their majority in the 2010 election.  Only a few months ago, they were willing to force the government into default over this issue.  Now it appears that they feel they can’t win with this issue in 2012, so they have stopped talking about it.

The latest fascination appears to be a flat tax.

Herman Cain started the conversation with his 9-9-9 proposal, which under closer scrutiny was just another method to redistribute wealth from the poor and middle class to the rich.  Some have also called the 9% business tax a job killer because it exempts investments, purchases, and dividends paid to shareholders.  Citizens for Tax Justice point out that the only business revenue left to tax after those exemptions is the portion of revenue that goes to pay wages.  So under this plan, businesses would have a significant incentive to REDUCE their workforce.

Newt Gingrich jumped in with a 15% flat tax option.

Now Rick Perry has joined the fray with a similar plan to give tax payers an option of choosing either a 20% flat tax or the current tax plan, whichever produces the lower number.  Quick analysis from the Center for Budget and Policy Priorities concluded that the overall reductions in federal revenue if this plan were enacted would require cutting at least a third of all federal spending outside social security.  Perry suggested capping federal spending at 18% of GDP without any detail on what he would cut to get there.  That’s a level that we haven’t seen since the 1960’s.

This graphic provides just a little information about why that number is unrealistic.  By the way, all of the figures in this graph are adjusted to 2010 dollars.

We are a significantly older nation than we were in 1960.

We are going to continue to age as a nation because we live longer than we did in 1960.

As a result, healthcare costs more per capita than it did in 1960.

We have way more people than we did in 1960.  As a result there are way more people in poverty than there were in 1960.

The cost of education has risen.

The cost of gas has risen.

The cost of competition with China has risen.

The net of all of this is that the cost of a government has risen too.

In terms of comparables, were this budget actually implemented, we would become the lowest-per-capita spending industrialized country in the world.  That is not a good thing when countries like China, India, and Germany are investing more in education, research, infrastructure, and new industries than we are.

We’ve also had a recent revelation of a government study done in 2000 when it appeared we would actually pay off the debt by 2012.  The study suggested that US Treasury Bonds are a key component to the world financial system.  If we paid off our debt, we would also retire all of our bonds.  That could seriously destabilize the world financial system by removing the safety net that supports all world commerce.  Even the concept of paying off all our debt is not actually a wise global financial choice.

The good news is that the political dialog has changed to jobs, which is where it should have been.  More jobs was, is, and will be the ultimate solution to our debt problems.

The bad news is that, though we are finally talking about what really matters in this country, Republicans continue to suggest that reducing the size of government, cutting spending, reducing regulation, and balancing the budget is a viable short term solution to job growth.

We’ll take that up in the next post.

Leave a Reply