Thursday, April 12, 2012

Fixing the Debt

Fixing the debt without bleeding government services till they shrivel into nothingness. It can definitely be done, according to this article in Rolling Stone. The writer is Julien Brooks and his take-off point a new book by Simon Johnson and James Kwak, White House Burning: The Founding Fathers, Our National Debt, and Why it Matters to You.

This book, according to the analysis, shoots to hell the standard argument from the Right that out-of-control government spending is responsible for the deficit, and the way to attack it is to slash social programs that benefit the poor and middle class: Medicare and Social Security.

Not at all so: "Out-of-control government is not the cause of the debt (unless you count out-of-control Pentagon spending on two wars); we do not need to act on deficits immediately, although the long-term debt is a genuine problem that needs to be addressed; and the way to get our fiscal house in order is not to slash spending on programs that benefit poor and middle-class Americans. . . . White House Burning, . . . doesn't soft-pedal the dangers of running up big deficits indefinitely, but it makes a powerful case that we can get the debt under control in a way that strengthens, rather than rolls back, essential government programs like Social Security and Medicare."

Okay. How? Here's what Simon Johnson, former chief economist for the IMF and one of book's authors says:
Don’t extend the Bush tax cuts that expire at the end of this year. Increase the payroll tax to help fund Social Security. If you do that, you can achieve up to half of the fiscal adjustment that’s needed by 2030. Now, you may not want to do it all in one go because of where the economy is in terms of recovery, but the president should come back to Congress early in 2013 with a proposed temporary payroll tax cut, and link that to employment; if the economy recovers, payroll tax would go up, but only if the economy recovers.
In addition, you would reduce or eliminate certain tax expenditures – lower the mortgage interest deduction tax; phase out the employer health plan exclusion, a tax credit for businesses for providing health insurance (this makes us unpopular with the left, because unions like this break, but you can do that in a way that protects relatively poor people). Put a higher premium on Medicare Part B and increase the Medicare payroll tax. Increase the maximum capital gains and dividends tax rate; introduce a carbon tax, but rebate half of the proceeds. Charge “too-big-to-fail” banking institutions for anticipated rescue costs. Eliminate some of the tax expenditures that businesses get. Reduce spending on Fannie Mae and Freddie Mac, and on farm subsidies. . . .
The program in the book is not a massive government expansion. The argument is, let’s defend social insurance programs, and let’s keep the good role of the government roughly speaking as it is, and put its funding on a more sustainable basis. We can absolutely afford it.
Makes all kinds of sense to me . . . and there's no mention of slashing the obscene Pentagon budget, which would help a great deal more. But jack rabbit in the talons of a hawk has more of chance at life than these proposals do with the Republican party.
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