Raise Taxes or Cut Spending?

[Eternal Yerushalayim]

Raise taxes on individuals and corporations AND cut spending, particularly in defense.

http://www.usgovernmentrevenue.com/revenue_brief.php
http://en.wikipedia.org/wiki/Income_tax ... 930_-_1960

Actually, in terms of revenue to GDP for the Federal Government, it has been relatively flat for most of the years in the 20th century, despite hikes and decreases of taxes, so tax increases won't really help. Spending cuts should be done, though. Especially, like you said, on 'defense', which is just policing of the world.

Yet, leaving the world alone is not a common characteristic of Americans.
Defence spending should be cut by $170 billion> in FY 2012 alone, and frozen at that level for four years,while tax rates, especially for corporations, should be reduced gradually. While revenues may not increase, we must remember that high taxation and inflation reduce productivity, and that the people's money is the State's only source of money. People should work less for the government, and more for themselves.

[Conserative Morality]

http://www.usgovernmentrevenue.com/revenue_brief.php
http://en.wikipedia.org/wiki/Income_tax ... 930_-_1960

Actually, in terms of revenue to GDP for the Federal Government, it has been relatively flat for most of the years in the 20th century, despite hikes and decreases of taxes, so tax increases won't really help. Spending cuts should be done, though. Especially, like you said, on 'defense', which is just policing of the world.

I don't believe the continual increase of wealth in general during the past century and the resulting increase in tax revenue as an absolute amount is an argument for "Raising income taxes will not increase revenue".

[Alien Space Bats]

The effect of doing nothing:

(Image)

That’s Austin Frakt’s graph, which uses the Congressional Budget Office’s September numbers, and it shows what happens if we do ... nothing. The answer, as you can see, is that the budget comes roughly into balance. Our problems are solved!

But nothing is hard to do. This nothing, for instance, includes three crucial elements: (1) All the Bush tax cuts expire, as they’re currently scheduled to do; (2) The Medicare doc fix is either implemented or its repeal is paid for over the next 70 years; and (3) the Affordable Care Act is implemented, and all of its spending targets are met and all of its taxes are collected.

http://www.washingtonpost.com/blogs/ezr ... _blog.html

The problem with this graph - as the author admits in the text - is that it doesn't include interest on the debt, which is the real budget buster over time. President Obama mentioned this in his speech, so he's aware of it; for their part, I'm sure that the GOP is too (after all, interest on the debt constitutes an indirect transfer payment from taxpayers to the rich, since that's who hold most of this country's debt; if we can shift the burden of taxation to the lower and middle classes while increasing the debt, we can accelerate the concentration of this country's wealth into the hands of our future oligarchic masters).

Thus, some action (above and beyond what Congress and the President foresaw in passing the PPACA back in 2009) is necessary, especially in light of the extension of the Bush tax cuts through 2012.

The first step is, of course, to allow those cuts to lapse - all of them. I'm not just in favor of letting the Bush tax cuts lapse for income over $250,000; I'm in favor of letting them lapse across the board. I'm also in favor of enacting Cap and Trade, which creates another source of tax revenue; that can help offset the growing debt maintenance burden. Unfortunately, we cannot hope to do this until at least 2013, after Democrats win back control of the House and we reform the filibuster to prevent the Republican minority in the Senate from blocking everything in perpetuity.

Even that won't be enough, however. As I commented in another thread, while the NYT Deficit Puzzle is flawed in many ways, it provides a useful foundation for thinking about the problem.

Allowing all of the Bush-era tax cuts to expire at the end of last year (2010) would have reduced the FY 2015 budget deficit by $308 billion; it would have reduced the FY 2030 deficit by $517 billion. Unfortunately, this would have meant giving up on any hope of securing additional funding for EUC (Extended Unemployment Compensation) in a market where employment is still very soft; as EUC is far and away the most stimulative form of Federal spending there is, and the economy was still quite weak at the end of last year, the President and the Congressional Democratic Caucus had little choice by to extend the cuts. On the positive side, doing so might have given the economy needed time to heal, and the EUC benefits authorized (through the balance of 2011) should also help; on the negative side, both the extended tax cuts and the additional EUC benefits will produce a greater deficit in FY 2015 and FY 2030 than the NYT model predicts.

Between now and FY 2013, little more can be done on the revenue side; the GOP can be counted on to block most reasonable deficit reduction proposals that don't meet their ideological goals, and few really useful measures do so. From the NYT model, I would consider freezing Federal salaries and implementing a RIF (Reduction in Force) through attrition (these appear in the model as "Cut pay of civilian federal workers by 5 percent" and "Reduce the federal workforce by 10 percent"), although both would have to be handled carefully to maximize staff retention (which means they would probably not be quite as effective if begun in FY 2011 or FY 2012 than they would have been if implemented 4-6 months ago). According to the NYT model, these measures would reduce the FY 2015 and FY 2030 deficits by $26 and $32 billion, respectively.

One measure which the NYT model does not allow, but which has real potential, is to bring back spending caps similar to those imposed by Congress on itself back in the 1990'S. This is one of the measures President Obama called for in his speech at GWU back on April 13th, 2011, and it's a measure I wholeheartedly endorse. It has the potential to save a considerable amount of money in future years simply by limiting the the growth of Federal spending relative to rising Federal revenue.

The pathetic nature of the cuts Congress approved for FY 2011 as part of last week's budget deal (in which $38 billion was ostensibly saved, but where 99% of those savings proved to be saving in future years), combined with the horribly partisan (and senselessly penny-wise pound-foolish nature of the cuts, which excessively impacted such things as community health services, law enforcement, etc.) suggests that the political will to make serious cuts in domestic discretionary spending does not presently exist. That suggests that defense spending is one of the few places where the country can go (at least with the present Congress) in order to achieve any real gains.

Conservatives come in two flavors: Isolationists who would gladly cut defense, and super-patriots who see defense cuts as un-American. Let me begin, therefore, by looking at recent defense spending as a percentage of GDP:

Year GDP (US $ billion) Military Defense Veterans Foreign Military Aid Foreign Economic Aid Total
1992 6342.3 4.70 a 0.54 a 0.12 a 0.14 a 5.50 a
1993 6667.4 4.37 a 0.54 a 0.11 a 0.14 a 5.16 a
1994 7085.2 3.98 a 0.53 a 0.09 a 0.15 a 4.75 a
1995 7414.7 3.67 a 0.51 a 0.07 a 0.15 a 4.40 a
1996 7838.5 3.39 a 0.47 a 0.06 a 0.11 a 4.03 a
1997 8332.4 3.25 a 0.47 a 0.06 a 0.13 a 3.90 a
1998 8793.5 3.05 a 0.48 a 0.06 a 0.09 a 3.67 a
1999 9353.5 2.94 a 0.46 a 0.06 a 0.10 a 3.56 a
2000 9951.5 2.96 a 0.47 a 0.06 a 0.11 a 3.60 a
2001 10286.2 2.96 a 0.44 a 0.06 a 0.10 a 3.56 a
2002 10642.3 3.27 a 0.48 a 0.07 a 0.14 a 3.96 a
2003 11142.1 3.63 a 0.51 a 0.08 a 0.11 a 4.34 a
2004 11867.8 3.84 a 0.50 a 0.07 a 0.16 a 4.57 a
2005 12638.4 3.92 a 0.56 a 0.06 a 0.21 a 4.75 a
2006 13398.9 3.89 a 0.52 a 0.06 a 0.16 a 4.64 a
2007 14061.8 3.92 a 0.52 a 0.06 a 0.15 a 4.64 a
2008 14441.4 4.27 a 0.59 a 0.07 a 0.13 a 5.05 a
2009 14258.2 4.64 a 0.67 a 0.04 a 0.22 a 5.57 a
2010 14660.4 4.73 a 0.74 a 0.08 a 0.23 a 5.78 a
2011 15079.6 5.09 b 0.94 b 0.08 b 0.29 b 6.40 b

Legend:
a - actual reported
e - out-year estimate in US fy12 budget
g - 'guesstimated' projection by usgovernmentspending.com
b - budgeted estimate in US fy12 budget

There are a couple of noteworthy things here:

• Foreign military and economic aid have remained pretty much the same since the end of the Cold War (the recent increase is an artifact of the recession, since these figures are stated as a percentage of GDP; once the economy recovers, both numbers should fall back into the trend line of around 0.06% of GDP for foreign military aid and 0.10-0.13% of GDP for foreign economic aid). The exceptions to this were an increase in foreign economic aid in FY 2004-2007, which was caused by the Bush administration essentially using such aid as "bait" to get prospective allies involved in Iraq, and a few small increases in foreign military aid corresponding to our efforts to build up Afghan and Iraq forces (in FY 2002-2004 and again in FY 2008); barring another major conflict (Libya is not a major operation, and thus does not count) the end of American operations in Iraq (and eventually Afghanistan) should see a similar end to such momentary increases.
  
  
• Spending on veterans has increased since the advent of the Iraq War, and will probably remain elevated well after that conflict (and the intervention in Afghanistan) have ended. Since a fair amount of this spending is for veterans' health care, efforts to contain health care costs should help reduce this spending as well. That said, we need to expect veterans' spending to be elevated for a while, as always happens after the end of any war.
  
  
• FY 1999-2001 represent a post-Cold War peacetime baseline (with direct defense spending at around 3% of GDP): By FY 1999, the post-Cold War force reductions were complete and most American military operations in the Balkans had come to an end; FY 2002-2003 marked the start of operations in Afghanistan and the run-up to operations in Iraq; FY 2008 represents the Iraq "surge" (in part), while the numbers for FY 2008-2011 (and especially FY 2009-2010) are all skewed by poor national economic performance (as these numbers, again, are relative to GDP); FY 2011 is also inflated by the recent uptick in Afghan operations (sometimes also called a "surge").

With the end of operations in Iraq and a likely partial pullback from Afghanistan, defense spending will come down; an end to Afghan operations altogether (which is likely over the next 3-4 years) would create the opportunity (assuming no other conflict elsewhere in the world) for the U.S. to return to the FY 1999-2001 post-Cold War "baseline". The present pace of operations in Southwest Asia, judging from the foregoing numbers, has probably resulted in an increase in direct defense spending of about 33% - not counting the present (accelerated) pace of Afghan operations (the aforementioned Afghan "surge").

This suggests that about $200-$220 billion of our current military budget is attributable to current operations in Southwest Asia, a fact which suggests that we will enjoy substantial savings when such operations come to an end. That said, I would not advocate ending operations in Iraq or Afghanistan prematurely merely due to present budgetary woes; I would simply look to the defense budget as a likely source of savings as those operations wind down on their own. This suggests that there will be considerable opportunities for savings in the near future from cuts in defense that do not involve making major decisions regarding American military capabilities or in America's level of commitment to global security. That's not to say that additional savings could not be realized from a reevaluation of our security needs and further downsizing of our military, as many liberals wish to see; it is simply to say that there ought to exist a foundation for some sort of bipartisan consensus that spending cuts can be had from within the Defense Department's budget, given that everyone expects our involvement in Southwest Asia to diminish anyway.

For that reason, I advocate a conscious decision by the U.S. to draw down its forces to pre-Iraq War force levels (essentially, what they were in FY 2001-2002) as American forces are withdrawn from Iraq and Afghanistan. The withdrawal from Iraq would should proceed apace; we should review our role in Afghanistan against the context of the so-called "War on Terror" against the backdrop of the recent changes that have occurred throughout the Arab World. My gut feeling is that the so-called Jasmine Revolution has changed the geopolitical landscape in ways that may make further involvement by the U.S. in Afghanistan less significant than it once was; if this proves to be the case, then we should consider accelerating our timetable for withdrawal from that country.

Not even the super-patriots should object to this approach, as it subordinates our choice of force levels and our current deployments to strategic needs rather than budgetary considerations, meaning that we can't be said to be weakening ourselves for the sake of deficit reduction.

In the meantime, turning to the policy options offered by the NYT model, I would also advocate a reduction in strategic nuclear arms (necessary as a result of the START treaty approved by the Senate at the end of 2010) as well as a slowdown in our nuclear arms modernization program, further reductions in weapons R&D, and a reconsideration of our basing needs in Europe and Asia based on recent developments (including NATO's willingness to take the lead in Libyan operations, which shows that Europe can perhaps shoulder a greater share of its own security needs and the burden of supporting global stability than we give them credit for). In the NYT model, these three options (labelled "Reduce nuclear arsenal and space spending", "Reduce military to pre-Iraq War size and further reduce troops in Asia and Europe", and "Cancel or delay some weapons programs") are scored as saving $63 and $105 billion in FY 2015 and 2030 respectively. If an early withdrawal from Afghanistan is possible (labelled "Reduce the number of troops in Iraq and Afghanistan to 60,000 by 2015" in the NYT model), that would save $51 and $149 billion in FY 2015 and FY 2030 respectively; a faster withdrawal (labelled "Reduce the number of troops in Iraq and Afghanistan to 30,000 by 2013" in the NTY model) would save an extra $35 billion in FY 2015 and an extra $20 billion in FY 2030, but whether on not such a thing is feasible depends entirely on the outcome of the strategic review I mentioned above.

Cutting back on strategic nuclear weapons and cancelling some of the new weapons systems we've been looking to procure are, of course, controversial moves - this I understand. But I believe that both can be justified.

In the case of strategic weapons, the START treaty already calls for a reduction to 1,550 strategic warheads, just a tad over 75% of our current inventory (it's a somewhat bigger cut for the Russians). Given that the next most heavily-armed nuclear powers - France and China - have around 400-450 warheads each, this still leaves us in a fairly safe deterrent position vis-a-vis the rest of the world; that, combined with the fact that this is a cut the Russians will be undertaking as well, suggests that we're not really risking anything by this move. Then, too, it doesn't affect our tactical nuclear weapons arsenal, which is still huge. The number of tactical weapons we have (over 10,000 - the same as Russia) is more than enough to give us the power to wipe most of the rest of civilization off the map.

Modernization can proceed at a slower pace than the Administration agreed to in 2010, largely because Arizona Senator John Kyl forced the Obama Administration to pad the budget as part of the price of getting the START treaty to a vote; that pad should be removed and the original modernization schedule restored. Here, I would try to get some of the Tea Party Republicans to break with Kyl on this issue, given that the far-right caucus (and especially Kentucky Senator Rand Paul) are much more willing to consider defense cuts for the sake of bringing the deficit in line.

Cutting advanced weapon systems is harder, in no small part because jobs are at stake within the districts where these weapons are built. Yet many of the more lavish new systems are questionable from a military perspective, in so far as the U.S. continues to enjoy a good position with respect to most European powers (who are our principle competitors in the arms trade, also important for private sector employment) and a superior position with regards to everybody else. That said, I believe that getting cuts here is easier than getting them elsewhere in the budget, partly by using the President's position for public relations purposes (what political scientists call the "Bully Pulpit"), partly by promising to try and assist U.S. aerospace firms in selling weapons to other countries, and partly by appealing to the aforementioned rifts within the GOP between isolationists and super-patriots.

If either of these sets of cuts can be made it will help; if both can be made, that would be almost ideal.

---

According to the NYT model - which admittedly has some flaws - these two sets of measures (rescinding the Bush tax cuts and reducing force levels back to pre-Iraq War levels as withdrawal from Iraq and Afghanistan permits, with additional defense cuts in strategic weapons, nuclear modernization, and certain advanced weapons systems and supporting R&D) would save $397 billion in FY 2015 and $654 in FY 2030. This would not be enough to eliminate the deficit for either year; in fact, the NYT target numbers ($418 billion in FY 2015 and $1,345 billion in FY 2030 actually represent the reductions from the President's proposed 2011 budgetary baseline needed to reduce the deficit below 3% of GDP), so (by the NYT scoring), what I've proposed is still $21 billion short of the mark by FY 2015 and $691 billion short of the mark by FY 2030. But they represent a good, solid first whack at both sets of numbers (especially the FY 2015 figures), a form the basis for a new set of policies, to be implemented in FY 2013 and beyond, that would close the rest of the gap and set things straight for FY 2030 and beyond.

I have to leave this off here for now; obviously, another post is needed to talk about what I'd do after the next election.

[Sungai Pusat]

http://www.usgovernmentrevenue.com/revenue_brief.php
http://en.wikipedia.org/wiki/Income_tax ... 930_-_1960

Actually, in terms of revenue to GDP for the Federal Government, it has been relatively flat for most of the years in the 20th century, despite hikes and decreases of taxes, so tax increases won't really help. Spending cuts should be done, though. Especially, like you said, on 'defense', which is just policing of the world.

I don't believe the continual increase of wealth in general during the past century and the resulting increase in tax revenue as an absolute amount is an argument for "Raising income taxes will not increase revenue".

Well, the only problem is that a good chunk of that wealth was perpetuated because of inflation. There was real GDP increases across the times, despite tax increases or decreases, along with increased revenue along that too.

http://www.google.com/publicdata?ds=wb- ... gdp+of+usa
http://mykindred.com/cloud/TX/Documents/dollar/

So, yes. Raising taxes, with empirical evidence, wouldn't increase revenues. A growth in the economy, though, will.

[Conserative Morality]

Well, the only problem is that a good chunk of that wealth was perpetuated because of inflation.

Hah. I think I can safely stop here.

[Eternal Yerushalayim]

Well, the only problem is that a good chunk of that wealth was perpetuated because of inflation.

Hah. I think I can safely stop here.

You just implied that the government should raise taxes to make up for inflation. Though it's true that most of the growth of the previous decade has been inflationary, and that tax rises do not help the economy or fiscal situation much, your post could be turned against you.

[Conserative Morality]

You just implied that the government should raise taxes to make up for inflation. Though it's true that most of the growth of the previous decade has been inflationary, and that tax rises do not help the economy or fiscal situation much, your post could be turned against you.

Except, you know, that graph wasn't dealing with the past decade, it was dealing with the past century hurp derp.

Also, not an acceptable axiom.

[Eternal Yerushalayim]

You just implied that the government should raise taxes to make up for inflation. Though it's true that most of the growth of the previous decade has been inflationary, and that tax rises do not help the economy or fiscal situation much, your post could be turned against you.

Except, you know, that graph wasn't dealing with the past decade, it was dealing with the past century hurp derp.

Also, not an acceptable axiom.

It is the nature of finance to be inflationary.

The latter point is more controversial.

[Sungai Pusat]

You just implied that the government should raise taxes to make up for inflation. Though it's true that most of the growth of the previous decade has been inflationary, and that tax rises do not help the economy or fiscal situation much, your post could be turned against you.

Except, you know, that graph wasn't dealing with the past decade, it was dealing with the past century hurp derp.

Well, for the past decade, the economy went down in real terms. Nominal growth was 4 trillion dollars from the ten trillion befor. AKA, growth was 40%. The inflation, however, devalued the currency by 6.5 times. You do the math then.

[Mr Bananagrabber]

Except, you know, that graph wasn't dealing with the past decade, it was dealing with the past century hurp derp.

Well, for the past decade, the economy went down in real terms. Nominal growth was 4 trillion dollars from the ten trillion befor. AKA, growth was 40%. The inflation, however, devalued the currency by 6.5 times. You do the math then.

I'm not quite sure how these figures make sense. Could you explain them to me in more detail? And possibly source them?

[Natapoc]

Nice strawman.

What I'm saying is that those that ARE sustained by welfare would be REALLY, REALLY mad when they lose what has been sustaining them.

Plenty of people are on welfare or food stamps while working low-paying jobs.

You called them "apathetic". You, you, you.

Besides, I seem to recall that from 1776 to 1913 there was no income tax. Apparently, we were an anarchist hellhole then.

Hellhole. Yes.
Anarchist. No

[Caninope]

As something I want to note, tax receipts have historically been about 18% of the GDP, regardless of rate, going down in recessions and up in bull markets.