How Can We Fix the Deficit?

Discussion of the Week
The House passed yesterday a stop-gap spending bill to keep the government operating through Mar 18. It would keep most agencies operating at their current funding levels but also enact about $4B in cuts as a down payment of sorts for the GOP package of $60B in spending cuts, which was approved by the House on Feb 19 but stalled in the Senate because that body was on its Presidents Day Recess. Senate Majority Leader Harry Reid (D-Nev.) will now attempt to get a bill across the floor and into conference in two weeks.

This is about just stop-gap spending for fiscal 2011. So far, however, nothing serious has been proposed for whittling the deficit down from its massive $1.3T to break-even. President Obama’s $3.7T budget for 2012 contains spending cuts and increases along with tax cuts and increases intended to trim $1.1T over a decade from projected deficits. Another decade without reaching break-even! Any suggestion for meaningful cost cutting is immediately dismissed as politically infeasible, so debt continues mounting for America. Just last month, the national debt increased by another $64B to $14.195T. One month earlier, it was $14.131T. In an attempt to delay hitting the national debt statutory limit this spring, the Treasury drained $158B from its cash reserves last month to support government operations, dropping its balance from $349B to $191B.

Everybody agrees that government spending and borrowing is not sustainable, but nobody can agree on a way to fix it. The biggest expenses for the government are Health and Human Services (Medicare and Medicaid), Social Security, and Defense. Neither party will tackle them.

We’ve seen this dance repeatedly over the past two decades and the result is always more spending and a growing national debt that left sensibility in the dust several administrations ago. The discretionary programs on the chopping block comprise just one third of total spending. Take away defense, as Washington always does, and what’s left adds up to just 15 percent of the budget — meaningless. Parties are discussing such line items as the $8B Obama wants for high-speed rail, against which Republicans are taking a hard stand. Who cares?

Changing administrations means nothing on this front. The top five items in the Bush and Obama budgets command the same share of spending.

Because nothing changes, it will probably take a catastrophe in the debt market to force a sudden, unattractive solution. Federal Reserve Chairman Ben Bernanke pointed that out in recent testimony before Congress. Last month, he said:

“One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis.”

We constantly hear that tough choices need to be made. What tough choices would you make? How would you solve the financial crisis in Washington? Click the comment link below to join the discussion!

This entry was posted in Discussion of the Week, Sovereign Debt, US politics. Bookmark the permalink. Both comments and trackbacks are currently closed.


  1. Nick
    Posted March 28, 2011 at 2:09 am | Permalink

    Hello, I would like to say that we as americans have been lied to and blinded by our own media and politicians. In the bill clinton years we had a balanced budget, due to the fact that he rolled back high income tax rates to pre-reagan rates. And when i say “rolled back”, i mean increased. The changes imposed by the reagan administration were some of the most ill advised and costly to our nation and it sickens me when i hear people talk about him like he was a great president. First of all, (as previously mentioned) he lowered taxes on the rich. Second, he deregulated the financial system which led to many of the problems we are seeing today. Third, He and his wife nancy decided it was a good idea to have a “war” on drugs… …and as we know, the US is good at spending alot of $ on wars. While i agree that hard drugs have no place in our society, i feel that the criminalization of pot was on of the biggest wastes of our money and efforts-thank you nancy reagan. Now, when george w bush came into office, he immediately changed the tax rates back to reagan rates-and we began to have a deficit again. Gee, do you think he cared more about america as a whole or his rich friends?
    As for SS, it is funded and paid for by the people who recieve it, how can that be an “entitlement”? The govt borrows money from it without accountability, why doesnt anyone talk about this?
    I am not sure how to fix this situation, but i have a few ideas that wouldnt make it worse. First, campaign finance reform. Take the $ out of the equation, and lets get these “representatives” doing some actual representing, not chasing dollars. Second, It must be illegal for any elected official to become a lobbyist after serving our nation. Third, term limits and benefit/emtitlement reform for congress and the house. Set their terms to a max of 4-6 years and eliminate the lifetime free health care and “golden basket” items that they recieve. In summary, we need to make it a a public service position like it is supposed to be. Currently, our system rewards fat cats and the influence of $. The only problem is-we would have to get these same elected officials to make these changes on themselves…

  2. Posted March 5, 2011 at 4:00 pm | Permalink

    As I read these comments, I get tired of people who want a free lunch. If you want a great nation, you have to pay for it. It does not come free. If you want to maintain the ideals of our democracy and our principle of not leaving anyone on the battlefield, you have to pay for it. Stop whining about the crooks. There will always be thieves but you cannot base your national policy on a few thieves. You set-up programs to catch and punish them. If we backed up to the 1950’s, 60’s and 70’s, we had a graduated income tax rate based on the amount of benefit an individual received from this society and this great government plus the amount of benefit the person gave back. Corporations paid 70% to 75% of the government’s tax burden. If an individual or company wanted to get out of the 90% and upper tax brackets, they had to reinvest in America. That is the way the government of the people structured the tax code. Republicans and Democrats agreed on those points.

    Currently, our government kept us out of another Great Depression. It put major corporations into shape that deserved to collapse and close. Government intervention made them competitive in record time. the govenrment invested in the financial sector to keep it from collapsing and the American people are getting their money back with a nice profit.

    The budget problem is both a reduce spending and increase revenue problem. If you want a third rate nation, move to one and avoid taxes. I prefer the benefits that come from a fair tax system. The government is about to destroy the middle class if it does not return to the graduated tax system that we had in this country. This system was in part responsible for making this country great. Go back to a real graduated income tax. If you do not invest in America, you pay that highest tax — 90% on your last millions, 80% of the next tier, etc. I consulted on three industrial start-ups in the late 60’s and 70’s because the companies either invested the money in new companies or systems or shelled the cash out to the government in the form of taxes. The start-upos were funded with 10% monies — that is, the companies received full credit for the investments and got themselves out of the 90% tax bracket. With that type of indirect stimulus, the U.S. would not need a government stimulus and we could stop worrying about the budget and unemployment. A surtax on the wealthy and close the corporate tax loopholes for just ten years would put the U.S. in the black with no deficit. Let’s stop looking for a free lunch. The U.S. needs a new set of tax laws that takes the burden off the middle class and puts it on those who have benefitted the most from our great republic. If we keep cutting taxes, not only will our government suffer but so will all of America. Starving our government eventually starves the people and we will become a third rate nation of has beens. Try to eliminate waste, but do not try to eliminate government. That is an inherently self-defeating move.

    Hobbes has more truths about the nature of people than Locke. People, corporations need regulation and constant supervision or they devolve to their lowest level. Deregulate the food supply chain or the control on chemicals, and we will have massive deaths and crippling illness. We need a strong govenrment to protect us from ourselves.

  3. Jeff
    Posted March 4, 2011 at 2:22 pm | Permalink

    1) Cut defense. I support defense, understand it is an absolutely legitimate function of the government (job #1), I work in the defense industry, but the amount we spend on defense is obscene. First, cut say 90% of the overseas bases. We can project power, troops, and equipment nearly anywhere with ease these days. Especially if we got into a shooting war and we had to enlist FedEx, UPS, the airlines, etc. Get out of Japan, Europe, Korea, etc. That would save a big chunk of change. Kill JSF right now. I’m a fan of the F-35 and it’s a cool aircraft. We don’t need it. Get the technology benefits from the R&D (pretty much done) and live with F-22s and F-18s for another 10 years.

    2) Means test social security. I know there will be much whining. Agree Social security is a waste, but many folks need it. If your income is e.g. >$150k start to reduce Social security until it is zeroed at say $200k of income. Not very nice but we gotta do it.

    3) Means test Medicare. A tougher cookie. I’d say something like the first $20k (annually) of healthcare comes out of your pocket if you make more than X dollars/year. Not sure what X is but maybe $150k again.

    4) Cut all farm subsidies, foreign aid, etc.

    5) Here’s an unpopular one: reduce veterans expenses. Vets deserve much respect and some benefits, but the gravy train is a bit too much.

    6) No medicaid or anything else for illegals – I think we have to stop the (in my opinion) wrong interpretation of the 14th amendment (I think 14th) that an illegal born on U.S. soil is a citizen. Don’t think that was the intent and we should stop it.

    7) Tax the rich: I’m no fan of taxes and I make a nice living. Unfortunately we are so far in the frickin hole I don’t know what else to do but increase taxes. I’d say a top tax rate of 50% for all income over $1M (maybe $500k?). Ouch! Don’t like it but think we have to do something like that until the fiscal house is in order.

    Bottom line is make some sacrifices, have a lower standard of living.


    • Posted March 5, 2011 at 10:20 am | Permalink

      Thanks for stepping forward as one who works in the defense industry and admitting that it needs to be cut way back. I agree about overseas bases, and avoiding unnecessary foreign entanglements, a la Iraq and Afghanistan, would go a long way toward freeing up resources to focus on the real threat on the horizon: major war with sovereign militaries over oil and other commodities.

      As China builds a blue water navy and shores up oil reserves around the planet, the US is wasting its treasure and assets on pointless exercises in the Middle East. Pulling back on those and other unnecessary overseas military activity would save a lot of money and probably leave America on better footing for a war that matters.

      Among the 10 percent of overseas bases to keep, the ones in Japan are probably a good idea. Leaving a top ally in a key region of the world defenseless against the likes of North Korea and a rising China that’s constantly infringing on Japanese territory would be unwise, in my view.

  4. MBC
    Posted March 4, 2011 at 5:04 am | Permalink

    How about we stop spending on religious interest in Egypt and in the Middle East! How about we “hang” our govt. officials who continually fund areas that are not in the best interest of our county, as they try to win relationships with our enemies abroad! Come on people, our govt. has wasted multi millions on things we don’t even know about nor do we have a clue on the reason why they continue to spend in these areas! Let’s get rid of the officials who do not think about how they are spending our tax monies as they continue to spend wildly on things that don’t matter to the common American citizen! I say, we take care of America first! We close our boarders until we can clean up our mess and determine what our founding Fathers would have thought about how we are as a country today. My guess, they’d hang their heads in shame and embarrassment!

  5. Rick
    Posted March 3, 2011 at 1:19 pm | Permalink

    1. I doubt many/most of those commenting above have children. The world changes when you have a kid: the hubris that comes with youth and excess testosterone tends to dissapate. There are no easy solutions and it’s heckuva lot easier to see the meaning behind “there but for the grace of God go I”. Cutting Social Security? Riiiiight. Never. Happen. Nor should it. We have just come (part way) through a severe economic dislocation where whole divisions/departments/businesses were cut, and yet there are those drinking the “Ayn Rand” koolaid out there thinking that somehow it was because of a lack of merit. What’s that line from The Who? “Hope I die before I get old…”
    2. What brand of idiotic logic says that the answer to the FEDERAL deficit is to create countless STATE deficits? Doh! We’ll just fix the Federal problem by having the States take the responsibility. Or, “local” government. Give. Me. A. Break. I am 100% confident that out of 100 people who might be commenting on this (or any blog) you might find 2 who know the names of more than 1 “alderman” or “city council person” or whatever the local rep is titled. Suggestions to “localize” the responsibility are “nitwittian”. Economics 101 talks about savings and efficiencies from economies of scale, of centralization of requisite skills and the rationalization of production and delivery and expertise etc etc. but this latest feint by the moneyed Right to convince the Nitwittians to “recall how good it was back when Andy was Sherriff and ThelmaLou was the “schoolmarm” seems to be successful.
    3. David Koch and the truly well-heeled understand that our consumption society has already crossed the line separating those who understand self-governance requires self-control=deferred pleasure, from those that want their MTV/IPODS/IPADS/FACEBOOK/BANDWIDTH/ALL_STIMULATION_ALL_THE_TIME now. Getting the rabble excited about the need to “reduce the deficit” (like any one of us can put any of these numbers into perspective, or honestly understands why the deficit spending 6 months ago or 6 years ago was acceptable but the deficit spending now “has to stop! It’s killing us, man!”) is the perfect cover for pushing through less regulation on the banksters (who have already attached their siphons to your wallet, to a degree that makes the pittance given to social programs look like the chump change it is) and for cutting funding for … of all things… education. The best way to keep the rabble “the rabble”? Limit their education.

    Having gotten that off my chest, I’ll troll upwards and provide specific acerbic remarks to the truly needy.


    • Daniel
      Posted March 3, 2011 at 10:21 pm | Permalink

      Rick, please share your solution to the problem. I have yet to see it. You merely disagree with what others have posted without stating what your solution is…

    • Posted March 5, 2011 at 10:13 am | Permalink

      A reasonable request, Rick. What are your solutions?

  6. Irving Klein
    Posted March 3, 2011 at 11:02 am | Permalink

    S0me of the steps required are: 1) Increase the retirement age. When social security first started life expectancy was about 45 . Today it is about 85. People are living longer and healthier lives. If the retirement age. was increased by five years it would certainly help the situation.
    2) Set a target of 10% reduction for the defense budget, and let the military decide how to attain it.
    3)require all derivatives to be traded on a national exchange.We
    cannot allow trillions of dollars be gambled in a completely uncontrolled manner. If just a few of these bets ” go sour” it can wreck not only the US financial system but the world financial system. 4) Have a national sales tax as the Canadians and the Europeans have. 5)The measure of inflation used on the Consumer Price Index must be changed. Leaving out Energy and Food out of this index because it would make the index too volatile is a joke. this is just a means for all federal governments to understate inflation.
    6) require that 10% of American cars use natural gas by 2020 and 30% by 2030. The United States has a huge amount of natural gas reserves . Implementing this measure would certainly ease the dependency on foreign oil. It would also help the United States trade balance.

  7. Michael Lowery
    Posted March 3, 2011 at 9:21 am | Permalink

    I should correctly state that some of the Founding Fathers were directly opposed to a national banking system. I know that Andrew Jackson was really against it when he was president because I believe he knew what it would do to future Americans in giving more monetary power to bankers.

    • Rick
      Posted March 3, 2011 at 2:41 pm | Permalink

      Oh, great. Let’s all turn to the financial acumen of men who wore powdered wigs (to keep the fleas and stench down), employed exceptionally cheap labor (aka, slaves) and invested in Tulip bulbs (Franklin, Isaac Newton).

      “I’m comin’ Aunt Bee!”

      • Daniel
        Posted March 3, 2011 at 10:18 pm | Permalink

        Rick, you’re awfully bitter this morning! Go back to bed! 😉

  8. Michael Lowery
    Posted March 3, 2011 at 9:12 am | Permalink

    The founding fathers never really wanted us to have a national banking system. The Federal Reserve in my opinion, and based on what I have read historically is the real problem. It is not even an agency of the federal government. It is not accountable to anyone and that is how the rich bankers planned it to be. You probably have heard of the book – The Creature from Jekyll Island by G. Edward Griffin. He spent an enormous amount of time researching how the Federal Reserve got started and explaining the whole purpose of the Federal Reserve which was to make us Americans poorer while the bankers get richer. If you do a search on Google you will find audio files where the author goes into detail about ‘the Creature’. It is very interesting, revealing, and thought provoking. When you finally get an understanding about ‘The Creature’ then you will probably be angry. Some would probably call G. Edward Griffin a conspiracy theorist, but he is not. His book is full of references where he found the information that is out there, but most Americans just don’t know about it. I think you will find this interesting. You can find the full free download with the author explaining what the book is about on the Web.

    Here is a sample if you are agreeable to post it.

    Here is a little information on G. Edward Griffin.

  9. Lon
    Posted March 3, 2011 at 7:46 am | Permalink

    Why don’t we just cut back on the politicians themselves. Do we really need as many as we have? Could they cut back on their spending. Maybe some pay cuts. They are all independently wealthy anyway. How about they work for free for the privilage of being our representitives. If something is not done, there will be another rebellion like a few hundred years ago. When people get hungry enough, they will fight.

    • Posted March 5, 2011 at 10:11 am | Permalink

      The problem is that the only people who can decide to cut back on politicians (from within the rules of the system) are politicians themselves. Somehow, they just never seem eager to pursue that angle, nor lower pay for politicians, nor convert to a sparse retirement program for politicians, nor produce a stripped-down health care plan for politicians. A mystery!

  10. Cory R
    Posted March 3, 2011 at 7:29 am | Permalink

    Cuts alone will not solve the problem. Fixing tax loopholes (how many large companies pay effectively 0% tax?), decreasing the tax burden for the bottom 99%, and increasing it for the super wealthy is a start.

    Also, take a crack at the budget yourself with this interactive feature from the NY Times:

    “How Readers Chose to Fix the Deficit”

    Lots of great ideas to comb through.

    • Charlie
      Posted March 5, 2011 at 12:37 am | Permalink

      All companies pay 0% tax eventually. All they do is raise the price of thier product to pay the tax. Eventually the bill always falls to you & I.

      • Posted March 5, 2011 at 10:09 am | Permalink

        That’s right. Ditto producer price inflation, labor programs, and so on. Every business needs to charge more for a good or service than it costs to provide that good or service, and taxes are included in the cost of goods sold.

  11. Posted March 3, 2011 at 6:02 am | Permalink

    You can not run a business or a government without money. It is clear that cuts are not going to get us there. Soooo, taxes have to be raised. Perhaps not to the Eisenhower era level of 93%, but for the richest among us up around 65% could do the job. Polls show the American public is ready for it. So which brave soul will be the first to suggest it?

    • Rick
      Posted March 3, 2011 at 2:36 pm | Permalink

      Earl, your heart’s in the right place, but you don’t seem to have much of a head for recent much less distant history. We just came (part way) through the worst financial disaster since the great depression, the government’s running a risk of shut down for lack of a congressional spine, but NO ONE is talking about raising taxes. Even letting the Bush tax cuts expire (which is how they were initially passed… they had a sunset provision built in) was recast as a tax increase and thus, they live on (mostly). If that much pain wasn’t enough to let “tax the wealthy” be uttered by a representative, I hate to think what amount of pain will be required (or will be coming down the pipe when we simply refuse to pay the piper…).

  12. Posted March 3, 2011 at 3:31 am | Permalink

    I agree with what everything being said about Social Security. Make money management classes mandatory in school and teach the younger generation how to save. Whatever you sow you will reap later. People are just taught to be waaay too dependent on the government to give them everything. People with this kind of attitude will never learn to take control of their own destiny. This reminds me of a commercial I saw 3 days ago for a credit relief company: people were giving testimonials of how great they were and how they lowered their debt. One lady said ” I just feel like the credit card companies are taking advantage of people and trying to keep them in debt” This made me want to scream: HELLO – The only debt you have with the credit card companies is from stuff you decided to buy on credit and then didn’t pay back!

    As far as the defense budget goes – we definitely need to invest in protecting this country. Commanders of our armed forces should be mandated to lower their own budgets by a certain percent say 5% in a year. They will then figure out ways to save on little things here and there in their own field of expertise. After all, the budget needed always expands to fill the amount funding available. If you are given $1B in a certain field you will figure out a way to use it. If you are given $900M then you will find a way to make that work instead of $1B etc.

  13. Chris Burns
    Posted March 3, 2011 at 2:11 am | Permalink

    As for means-testing medicare and SS, this will not go far in terms of solving the budget issue. If you deny these benefits to, say, the highest 5% earners in the country, then you’re only saving 5% of the program’s cost, because they do not draw a disproportionate share of the benefits.

    But, the wealthiest 5% *do* draw a disproportionate share of income – around 30-35%. So if we want to balance the budget, one obvious way is to increase government revenue by increasing taxes on those who have the lion’s share of the country’s income. This is a very straightforward solution to the budget problem, but the discussion in Washington and among financial types in New York is entirely focused on cutting government spending – even though government spending is not out of line with historical trends, and is generally lower as a percent of GDP than almost any other comparably developed/advanced nation in the world.

    I know I’m going to hear an earful from the libertarian-minded out there who oppose progressive income taxation *on principle*, so in advance of that i’ll just say this: There’s no way in hell I’m going to believe that people who out-earn me 10-1 are out-producing me 10-1. There’s no way in hell you’re going to get me to believe, for example, that the VP above me in my company is 20x more productive than the patrol officer who responded to my 911 call last week, yet he earns takes home 20x more money. The market usually rewards competence, punishes incompetence, but it also generally gets the numbers askew.

    The budget deficit will be large, and will be with us, until income taxes are raised to at least 1990s levels, and stay that way for a decade or more.

    • Rick
      Posted March 3, 2011 at 2:29 pm | Permalink

      truth to power.

    Posted March 3, 2011 at 2:03 am | Permalink

    I also want to add that I give an “F” to any federal or state budget that ends in a deficit. Lowering the deficit, or rate we go into debt, doesn’t cut it for me as the US still adding debt to the national debt.

    I will only be happy with a budget surplus and I’d like to see the US pay down it’s national debt to $0.

    So I only give out two grades, an A if we run a budget surplus and pay down the national debt, or an F for FAIL no matter how large, small, or how much we cut the deficit.

  15. Charlie
    Posted March 3, 2011 at 1:50 am | Permalink

    Fix Medicare:
    The first task would be to determine who is truly needy (my parents sold their ranch in Colorado several years ago. They have nearly $1M in the bank, but still qualify for Medicare. Ridiculous). Second, the solution has to be high deductable insurance coupled with health savings accounts (for everyone, not just the needy). The HSA would be funded with tax-free dollars, could only be spent on bona fide medical costs (no liposuction or medical marijuana) and it could be passed down to our heirs. The consumer would be responsible for the first $10k or so/year of their health care costs. This would bring competition into the marketplace and drive costs lower. Because HD insurance premiums would be lower than the “pay for everything” plans we currently have, more people would be able to afford them. Neither the HSA nor insurance plan would be tied to employment so they would be transportable. Employers could certainly entice employees by contributing to HSA and insurance costs, but the policy would be in the persons name only. For those who cannot afford either, they will still have to be subsidized by the gov’t. For what we currently spend on Medicare, we can make a large annual contribution to every low income persons HSA. Just like everyone else’s HSA, unspent amounts would roll over year after year and accumulate into enough to easily pay for any non-catastrophic health costs. It would be the person’s money, not the gov’t, so they would be good stewards of it. And just like everyone else’s HSA, any unused portion could be willed to their heirs, setting the next generation up for success. The HD insurance could be pooled and bid out to insurance companies every 4-5 years paid for at a fraction of what Medicare currently costs.

    If 17% of the 300,000,000 US population live below the poverty level, that would be 51,000,000 people. Medicare currently spends $484B/year. That comes out to $9490/person/year. If we gave each of the 51 million $5k/year into their HSA, I’m confident we could pay the HD insurance premium with the other $4490. Even if we assume only $300B (as some of that $484B has to be paid for currently ongoing catastrophic care) that still gives us $5882/person/year. If we gave them $3k/year into the HSA, that would add up quickly.

    Eventually, as people’s HSA’s grew, they could move to higher and higher deductable, lowering premium costs. Eventually, the majority of us would be able to self-insure, and health insurance would no longer be an issue.

  16. Joe
    Posted March 3, 2011 at 1:44 am | Permalink

    I don’t want to make a long comment so I’ll say for starters let’s try “THE FAIR TAX”

    • Rick
      Posted March 3, 2011 at 1:26 pm | Permalink

      Yes, and what, pray tell, is Joe’s definition of Fair? If money is the measure of productivity (it isn’t, but let’s pretend), shouldn’t those who have provided the most productivity enjoy their fruits even more than schlubs like me, and thus be taxed even less?

      And if you don’t happen to subscribe to money=productivity, what then is fair? Since tall people are statistically more likely to be higher earners, shall we tax according to height? Tax men more than women?

      Come, Joe. Enlighten us with what is truly “Fair”…

      • Posted March 3, 2011 at 3:02 pm | Permalink

        I think he means the Fairtax referenced above and explained at

        • Rick
          Posted March 3, 2011 at 3:20 pm | Permalink

          Jason, now you done and pointed at the bait! I has to go and cover it up with leaves and go hide behind my tree again!

  17. Pete
    Posted March 3, 2011 at 1:35 am | Permalink

    $8 billion for a high speed train, who cares? Problem is, when you have 50-100 such money pits, it adds up. Granted, they are not all train projects, but billions for green energy, billions for green research, billions for green tax breaks, billions for cash for clunkers, billions for cash for caulkers, billions for states to increase or band aid their public sector unions, IT ALL ADDS UP!

    Increased out of control spending has greatly added to our overall financial crisis — the debt, current debt, under Obama has grown by trillions, in two years. He was elected president — that means he MUST take a leadership role, in dealing with SS and Medicare and Medicaid.

    Remember, Bush tried to deal with SS, and what happened, the DEM controlled Congress shot him down. How about putting some blame squarely where it belongs. We must reduce spending, and ignoring $8 billion here and there is not the right way to do it. When an individual goes into severe debt, they start by addressing the smallest credit card bill, and they start the clean up process. Yes, the big ticket items must be addressed, but so too the billions and hundreds of millions.

    • Posted March 3, 2011 at 3:46 am | Permalink

      Don’t be so quick to support Bush when he began the bank bailouts. Major spending to advocate a poorly run business. He is no better than Obama.

    • Posted March 3, 2011 at 2:58 pm | Permalink

      The real problem is that nobody’s better than Obama, nor he better than anybody else. For background, see the lively discussion last August about how both Dems and the GOP are bad for America’s finances. Does anybody really think the nation’s balance sheet would look any better if McCain had been elected? Not a chance.

      As for my dismissing the importance of an $8B budget item, it was not for lack of respect for $8B dollar in absolute terms, but rather its falling so far down the priority list in a $3.7T budget as to be a waste of energy. Arguing over items that represent 0.22 percent of the budget when the top three items (Medicaid/Medicare, Soc Sec, and Defense) comprise more than 70 percent is detrimental to meaningful progress.

  18. Simon Anglin
    Posted March 3, 2011 at 1:25 am | Permalink

    The major issues are entitlements, defence, waste, and apathy.

    Raise the retirement age to 72 for those retiring after 2050. Go back to the original point of Soc Sec. Focus on ways to reduce medical expenses like efficiency, competition, and prevention. More doctors and more insurance agencies. Imagine your great grandparents retiring at age 50. That is what we are doing now by retiring at age 60-65 and getting SS. It is not affordable. Tell people to save their own money rather than depending on the govt. for medical help.

    Reduce our defense budget, including aid and support for other countries. Imagine yourself donating to charity on your credit card or giving food to your neighbors while your family is starving at home. Reduce the military and freeze weapons spending for four years. Imagine spending borrowed money on guns to protect your pen pal’s house in Germany.

    In addition, fixing waste in govt. is a small but psychologically important factor in dealing with the deficit. I am not just talking about over billing and cheating on tax returns, but entire depts. in government that if they disappeared no one would notice. Some depts. could be combined and others reduced and still others cancelled. Imagine paying for a lawn service when you can’t pay the mortgage or paying for a house keeper when you can’t pay the electric bill.

    The last point is apathy. Numbers so large no one can relate, population so big no one knows who is paying, cheating, taxing, working, dying, insured, rich or poor. We must return power to state and local govts. so that people can relate to what is going on around them. People are out of touch with the federal govt. and the federal govt. is out of touch with the people. Apathy is a dangerous prospect in democracy and capitalism. Imagine paying your cable bill to a company that is ten times larger than it needs to be and not getting cable because the company can’t afford it — and you don’t care.

    • Rick
      Posted March 3, 2011 at 1:44 pm | Permalink

      Simon, you are stunningly brilliant! What an assembly of great ideas! Where do I begin to heap my praises?

      1. Raising the retirement age to 72. Of course. That makes all the sense in the world. Think of how many 68 year olds apply every day to work at Apple and Google and (soon) Groupon. Those firms didn’t get to megacap status without making sure there were plenty of grey hairs on the floor!

      2. “More doctors and more insurance agencies”. Nuff said!

      3. “Some depts. could be combined and others reduced and still others cancelled.” Why hasn’t anyone ever thought of this? It seems so obvious, but all great ideas do, in hindsight I guess. Maybe you could share with us which ones to combine? And especially that part about “cancelled”…that could get touchy, I suppose, but hey, we’re making an omelet here! And like you said, anyone who is disadvantaged as a result of the cancellation of a program, well they’ll just have to go to their state and local reps and say, “Hey, my tap water is on fire again! Could you please contact that fracking company upstream and across the state line and ask them to stop their billion dollar profit-making enterprise and figure out why their natural gas is dissolving in the aquifer?”

      I could go on and on, but… I’m losing interest… (Damn if you’re not right about the apathy!)

    Posted March 3, 2011 at 12:38 am | Permalink

    I seriously want the big 3 cut: Social Security, Medicare, and Defense. Along with getting our act together we’ll stop paying down so much interest on the debt also I also want to redo the tax system w/ the Fairtax.

    If we cut spending to the big 3, we’d have more than enough money to have the best roads, bridges, education system, etc. in the world AND cut taxes at the same time!!!

    1. The US’s military is as large as the next 14 countries combined, and most of them are our allies. The US military budget is 5x larger than the 2nd place China so even if we cut our military budget in half, we’d still have a military 2.5x larger than China. It’s also going to take them 20 years to catch up to where we are now, technology wise. And we certainly don’t need bases in 147 countries around the world, and something like 4 bases in every state.

    2. Social Security is a joke, we need to cut off all the younger generations. I’m 35 and right now I pay something like 7% in and my employee pays in like 7%. That’s a 14% of my money, right off the top, that goes into a horrid investment fund. I’m pretty sure I’ll receive a negative rate of return on my money.

    I’d rather have that 14% go into a 401k type system were I can invest and manage my own money. And what I sow is what i reap later on in life.

    Plus the SS fund doesn’t have any money, it’d be one thing if our money were set aside and invested, but instead it’s been borrowed and IOUs placed inside the fund. It’s a giant crock of crap.

    3. Medicare. Our health system is not economical. The whole system needs to be turned into a 401k type HSA system where you put away your own money to pay your own bills. If you don’t have 200k when you’re 80 for a new heart, then you don’t get a new heart. I have an HSA and when you see the real amount of how much things cost, it changes how you shop around, spend your money, and forces you to budget and decide on priorities.

    4. Taxes – I want a Fairtax solution like at . This would tax consumption and promote industry, production, and savings.

    This would mean keeping your “whole” paycheck. Your gross is your take-home. So one might think a 28% sales tax would be tough, but I’d also take home 35% more money than I do now.

    The Fairtax would institute a 28% national sales tax on all new items and services at their final point of sale. This would do away with the 10,000 hidden taxes we see piled on to everything by our govt like: income tax, corporate taxes, cell phone taxes, cable TV taxes, social security taxes, Medicare taxes, taxes on investments, taxes on interest, candy tax, soda tax, plastic bag tax, bottle tax, 3 gas taxes, property taxes, state, county, city, and district sales taxes, car taxes, death taxes, stadium taxes, etc.

    Taxing consumption would help slow down this lifestyle to spend everything we take home and live in a debt based economy. Instead the Fairtax would promote investments as they wouldn’t be taxed, saving wouldn’t be taxed. More investments would mean more money to industry, which wouldn’t be taxed. Industry would move back to the US as there would be zero taxes, this would create jobs and pump money into the economy.

    • Rick
      Posted March 3, 2011 at 2:26 pm | Permalink

      Under a thin veil of cogent reasoning, some truly ugly ideas can thrive.

      1. 35, eh? Not yet visited by the unyielding and unsympathetic horrors of time, I see. Come visit yourself at 35 once you’ve turned the corner on 50. I think you’ll be stunned by the arrogance.

      2. On what planet does an employer who is not REQUIRED to pay 7% towards her EMPLOYEE’S retirement voluntarily hand the 7% over to the employee “anyway”? So, you don’t actually have the “14%” to invest, you have the 7%. But what’s so magical about 7%? In your reasoning, the government picks 7% (from employee and employer) to generate the accounting revenue necessary to limit the deficit according to the political compromise of the time. If they didn’t have to limit the deficit, maybe it wouldn’t be 7%. And of course, if you were in charge of your own retirement (reap what you sow?) you might put away more than 7% … or less. People are VERY GOOD at doing what is best for themselves, right? Been in a mall lately? Bet you don’t see a single overweight person, right? And people stopped smoking years ago once it was obvious that smoking was pretty stupid (if you wanted to avoid huge costs and pain and premature death at the other end of your life), right?

      3. Rough and tough libertarians at 35 can say “tough noogies” to the IDEA of someone without funds needing a new heart, but they tend to get all squishy when that someone is their own father, or worse, their own son or daughter, or wife … or, gulp, self.

      4. Fairtax, as you describe it, is economically a recipe for disaster. I am not an economist, but I do wonder about some foreseeable consequences. Consider this: our society is consumption based. That means, much of the velocity and turnover of money is derived from consumers doing what they do. A significant tax on consumption will do two things among many: (1) fall disproportionately on people with LESS total income (since a greater percentage of their total income is spent on unavoidable and hard to eliminate expenses), (2) act as a significant drag on our consumption dependent economy, potentially causing the initially closed gap to “reappear” as the economy contracts. People who have all the money they need won’t “fill” the gap with more spending, there simply aren’t enough of them.

      For all the sturm and drang about the stimulus, the theory was not in question: less economic activity begets further direct transfer payments (social safety net spending), more layoffs, greater deficits, greater proportions of debt service costs to total expenses, and eventually (in the non-fiat world) higher taxes (or, in the fiat world, devaluation of the currency). While the means can be debated, the goal was without issue: stimulating the economy to get it moving again was essential. So, it does seem somewhat illogical to walk back to the brink and start building a house there (with a consumption tax).

      Once again, I’d invite those with a passion for tea to look a bit harder at who will actually benefit from the logical extension of some of these easy to swallow ideas. Trading “big government” for “big business” (the latter of which doesn’t even pretend to offer the individual anything like participation or voice) seems not unlike shifting the heavy suitcase from the right hand to the left.

      • Posted March 3, 2011 at 2:40 pm | Permalink

        A fine riposte, Rick, spoken by a man who’s perhaps stared gout or some other out-of-the-blue ailment in the face and wondered how it ever found him on the road from 35 to 50!

        The Fairtax, however, is not such a bad idea. As proposed, it’s not regressive. From the site’s response to common criticisms document (perhaps FRA – frequently rebuked attacks):

        “The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax. Today, low and moderate income Americans pay far more in FICA taxes than income taxes. Those spending at twice the poverty level pay a FairTax of only 11.5 percent — a rate much lower than the income and payroll tax burden they bear today. Meanwhile, the wealthy pay the 23 percent retail sales tax on their retail purchases.”

        Such a plan would protect the poor and give the rich more control over their tax spending — without paperwork! Imagine a world without an April 15. It’ll never happen, but imagine anyway. Here’s’s 2.5-minute overview video:

        • Rick
          Posted March 3, 2011 at 3:13 pm | Permalink

          1. Devil/details. I will have to do some research to more objectively object… but…

          2. The speaker said “Every American” would get the prebate; a payment of the amount of the tax they will pay on the “essential goods and services”. Sez who? Essential is another word for “standard” and “normal” and “average”, but the complexity of deciding what is standard/normal/average for me in New York City as compared to Chris in Denver and Joe in [Kokomo?] reintroduces some opportunity for “fightin’ words”. And it still begs the question of how to deal with my sweet, sincere but somewhat dim ex-wife, who hasn’t paid any tax for the past 5 years (hasn’t filed) because, “well, after rent, and gas, and food and utilities, and what few movies and trips I go on, there’s nothing left!” Handing her the prebate just moves her to a slightly larger studio apartment.

          3. Finally, I would say that this could be “employment neutral”… while I can’t see for certain all the new jobs and investment that would be made, I do see a long line of tax lawyers and accountants at the local unemployment office! Sell your Intuit!

          As I said, I will do some reading, but I am very skeptical. I think the attempt to make it non-regressive will end up swallowing the whole, since the “protected class” will expand from the bottom up, and folks making up to $75k a year will be demanding the prepayment for their tax on their essentials (the second car (Mom’s got to work, right?), the well deserved vacation, the flights to visit grandma and grandpa, the college tuition for junior, the ballet lessons for juniorette etc etc).

          I say, let’s consider something even more radical: a domestic production and distribution tax, together with a really healthy levy! It’s time consumers recognized that all these producers NEED us! Therefore, the producers and distributors should PREPAY our tax. And foreign producers should have their goods levied at the borders (still working on the internet problem… I”ll get it though!). Then, let the truly lowest cost providers, provide. It is the end game of capitalism: complete socialism! Once the producers and distributors realize that they wouldn’t exist if it weren’t for the shoppers, they’ll simply say, “where do I send my entry fee?” 😉

          • Daniel
            Posted March 3, 2011 at 10:15 pm | Permalink

            So your answer to our problems is, in a nutshell, to tax more?

            • CHRIS - DENVER CO
              Posted March 4, 2011 at 12:13 am | Permalink

              It was not a “fine rebuke” Jason. Rick didn’t offer anything constructive, he just came on to spread hate throughout the discussion.

              • Posted March 5, 2011 at 10:06 am | Permalink

                I think he raises a good point that it’s easier to oppose giving people new hearts in theory, harder when it’s someone in our own families. Also, I wouldn’t say Rick’s material is spreading hate, but admit he’s been indelicate in this discussion.

  20. Bill
    Posted March 3, 2011 at 12:12 am | Permalink

    I happen to be a government worker in Arizona and I do appreciate the benefits I receive working for the government. One of the benefits I have taken advantage of is the tuition reimbursement program. I received my accounting degree in 2004 and have been very unpopular with co-wokers and my wife explaining how the government could not afford to pay for all the benefits we receive. Eight years later I was proved right.

    Our society wants everything but does not want to pay for it, but wants others to pay for it. I have devised a get-government-out-of-or-get-rid-of list and I am happy to share my list with you. The following list is GET GOVERNMENT OUT OF or TERMINATE THE PROGRAMS:

    1. Healthcare (gov. out)
    2. Privatize Social Security (gov. out)
    3. Medicare and Medicare (gov. out)
    4. Housing (gov. out, free market in)
    5. Welfare (gov. out)
    6. FDA (get rid of)
    7. Farm subsidies (get rid)
    8. Government services Federal level or State services (get rid)
    9. Current Tax Code Fed. level and State level move to a Flat Consumption Tax.

    We need to let the free market flourish and stop using the government to punish achievement by using the tax code and capital gains tax. If our schools would teach our kids to invest for their future and how to handle money we would not need the nanny state. Benjamin Franklin observed while in India the more the government did for the poor the less the poor did for themselves and the less the government did for the poor the more the poor did for themselves.

    There are only two things government should do: 1. Defense, and, 2. Trade between nations. The rest should be left to the individual and the state. Learn to handle your own money and there will be no need for government.

  21. Haris
    Posted March 2, 2011 at 11:46 pm | Permalink

    1) The Health and Human Services services should become more efficient so they can keep providing (nearly) the same level of service, but to cost less.
    2) Social Security, for the young people at least they can guarantee them that they will pay them back what they paid into the system over the years adjusted for inflation. Otherwise, it will be robbery taking peoples money and do not give them their money’s worth of return.
    3) The defense budget needs to be reduced, however, the decision must be made by the military what programs they need to stop, make more efficient, demand better deals from the defense contractors, etc.
    4) Cut tax loopholes and raise taxes as soon the economy gets back in its feet. The deficit it is not going to pay itself.
    5) Invest in education, infrastructure, and alternative energy research. We can not afford not to invest in these areas, we need that in order to keep the country competitive.

  22. Sandra
    Posted March 2, 2011 at 11:44 pm | Permalink

    Recently I watched an interview with Rand Paul discussing ways to balance the budget. I wondered why he was focusing on cuts to Social Security when it is Medicare that is breaking the bank. A few days later I found the answer in the article below. The Medicare market is so lucrative that even foreign insurers are trying to cash in on it. These foreign insurers will of course enjoy all of the same benefits that American insurers do such as government set prices in the market place and exemption from antitrust laws. Social Security just affects ordinary folks but Medicare is big business and not likely to be touched.

    Munich, 4 January 2011 | Munich Health
    Munich Re, through its subsidiary Munich Health North America, Inc., has successfully concluded the acquisition of US Medicare provider Windsor Health Group, Inc. (Windsor) for US$ 131m in cash.
    The purchase of Windsor is a further step in Munich Health’s strategy to strengthen its position in the US Medicare market. Under the brand Munich Health, Munich Re combines its global insurance, reinsurance and risk management expertise in the field of healthcare.

  23. Bob
    Posted March 2, 2011 at 11:24 pm | Permalink

    Even as a recent retiree, I support cuts in Medicare, Medicaid, and Social Security, but with an asterisk. Charity, wealth distribution, social engineering, and vote buying are not legitimate government concerns.

    Here’s the asterisk: Retirees (and soon-to-be retirees) have an implied contract with the government. We paid into Medicare and Medicaid with the implied promise that we would get something for our efforts. I therefore think we need to phase in any reforms to be fair (there’s that word!) to those who have based life-altering decisions on that implied contract — especially since we didn’t enter into it voluntarily.

    I believe national defense is one of the legitimate responsibilities of our federal government. I do believe there is a great likelihood that there are substantial savings possible in this area but am suspicious of any attempts to cut cut spending here as these attempts almost always come from those who show no other interest in reducing spending (generally for the purposes listed inn the first paragraph).

    • BobE
      Posted March 3, 2011 at 1:25 am | Permalink

      As a retiree (of 10 years experience) and a former worker in the national defense industry, I would like to offer the following comments. I believe that significant cuts in defense R&D could be made without harm to our country. Of course the problem is loss of jobs in parts of the country where the cuts occur. It is similar to the “base closing” issue.

      Cutting spending is only one half of the equation for balancing the budget. I see that Jason did not mention tax increases for individuals as a way toward balance and I think I know why. I have many friends, both working and retired, that could easily afford a tax increase. Our country has been at war for a very long time without any attempt for a pay-as-you-go plan. Supporting our military ventures should include reaching for our wallets as a matter of basic patriotism.

        Posted March 3, 2011 at 5:06 am | Permalink

        The big 3+ (SS, Health, and Defense + interest on the national debt) come to about 80% of the total budget. If we cut those 4 items, we can easily afford to have great roads, schools, etc. AND cut taxes for all at the same time!

  • The Kelly Letter logo

    Included with Your Subscription:

Bestselling Financial Author