well you know the rest, "...We'd all have a Merry Christmas." Today I am talking about the deficit and the realities that both Republicans and Democrats need to come to grips with in order to solve our unsustainable fiscal situation.
Steven Pearlstein of the Washington Post wrote about a great solution/recommendation a few days ago regarding how to solve our current budget situation. I am slowly coming to the conclusion that when Presidents want to float trial balloons they do so through old-school media reporters/columnists like Pearlstein.
Pearlstein, basically has a 50/50 solution, where he proposes that 50% of the issue of the deficits be solved through taxes and the other 50% through spending cuts.
Pearlstein, assumes we will always have a very dynamic and innovative economy, where we have the ability to grow year over year have occasional downturns/recessions.
The federal government is on path to raise about 19 percent of U.S. gross domestic product in taxes while spending 26 percent. Given our wealth and growth potential, it is not necessary to balance the budget -- if we shrink spending quickly, we can safely run a deficit of 2 percent of GDP. That suggests a "hole" to fill of about 5 percent of GDP. When you factor in much-needed infrastructure investment, that hole widens to about 6 percent of GDP, or about $500 billion a year.
He goes on to say that the hole cannot be filled by simply, just cutting spending or Just raising taxes, it won't work. You have to have some combination of both, hence his 50/50 solution.
Pearlstein also notes that on the spending side of the equation, draconian cuts are not necessary only limits in growth.
...this budget blueprint doesn't require an overall "cut" in spending, even after allowing for inflation. The spending restraints can be achieved simply by limiting spending growth. That's not to say people won't scream about foregone spending increases, but it should put the lie to the notion that serious spending discipline needs to be Draconian:
-- Hold federal health spending increases (Medicare, Medicaid, premium subsidies) to GDP growth plus 1 percentage point a year, rather than the GDP-plus-2.5 percent that has been the norm. That's easy to say but hard to do, requiring huge changes in the way health care is paid for and delivered.
Further
-- Raise the eligibility age for Social Security and Medicare by one month for each two-month increase in average life expectancy
And
-- Limit growth of "discretionary" spending -- defense as well as domestic -- to the rate of inflation, except to pay for wars, natural disasters and safety-net spending during recessions.
On the tax side he suggests raising revenues by a new Value Added Tax, with a rebate to those in the lower income brackets. Raising the income caps on Social Security, raising the Medicare tax by 3% on all incomes, introduce a new carbon-based tax, incomes above $50k/yr for a family of four would pay taxes on wages, salaries and short term Capital Gains indexed at three rates of 17%, 27%, & 37% at incomes >$50k, >150k. and >$250k/yr.
He also suggests eliminating the inheritance tax, however estates would first have to pay off any deferred and unpaid Capital gains on assets before disbursement to heirs.
Now this plan while not perfect, seems to be in my minds eye anyway, where we are headed. A situation where both Conservatives and Progressives are not all that happy, but in the end, it makes our fiscal course more stable.