Our nation’s debt crisis is well-documented. Everyone from the pundits to the apolitical have chastised the 112th Congress and President Obama for playing a proverbial game of chicken with the nation’s economy over the disarray of our fiscal house. It’s been well over 900 days since the Senate last passed a budget. The deficit since then is expected to have jumped from $1.4 to $1.65 trillion. But instead of Republicans and Democrats coalescing around a solution to this increasingly challenging political crisis, we have much of what we witnessed throughout the summer: deadlock. The Super Committee failed to reach a compromise, and Congress is back to the start in terms of finding ways to reduce the deficit.
Despite what rhetoric may indicate, each party is equally guilty of incompetence. The Republican Party claims to be a party sincerely concerned with the growing debt, yet denies the need for new revenues that are
necessary to offset the historic spending packages that its members whole-heartedly endorsed under President George W. Bush and the military spending it invariably continues to defend under President Barack Obama. Mind you, fiscal conservatives, that revenue increases are not necessarily tax increases. As Rep. Mike Simpson (R- Ida.) claims, they can just as easily be achieved by “lowering the tax rates and eliminating all the exemptions underneath.”
The Democratic Party, on the other hand, has been just as obstinate in its refusal to balance the budget by making substantial cuts to entitlement programs, which comprise close to 50% of the federal budget. It is important for the Democrats to realize at this juncture, though, that without considerable, well-calculated reforms to Medicare, Medicaid, and Social Security, entitlement spending and interest could swallow the entire budget by 2025 according to a CBO projection. Additionally, most Democrats have maintained their fixation with a tax hike on the “wealthy” that is only a small part of the solution to our nation’s fiscal woes.
The two parties leaders exemplify this obstinacy. Whereas Sens. John McCain (R-Ariz.) and Lindsey Graham (R-SC) would rather chain themselves to the Pentagon’s foundation than see cuts, House Minority Leader Nancy Pelosi (D-Cali.) refuses to discuss the notion of a scale back of entitlement programs.
Even when concessions are granted, they are never enough for the other side. Super Committee Republicans proposed $500 billion in revenue increases. Democrats on the Committee demanded more. Democrats offered some meaningful cuts. Republicans, namely Tea Party sympathizers, stomped and groaned in frustration.
The American people are noticeably fed up with the Hill. One poll following the passage of the August debt ceiling bill showed that more than four out of five Americans felt the political machinations to be “more about gaining political advantage than about doing what is best for the country.” If that were not bad enough, a more recent poll recorded a 9% approval rating for Congress.
But there are compromises and common ground that the parties can find. There is a middle-of-the-road approach that would yield the best results and draws from Democratic, Republican, and bipartisan deficit reduction proposals. Dogmatism can only go so far in the midst of a highly polarized political environment, and the United States needs substantive, well-intended legislation to bind Congress in ensuring the fiscal health of the United States.
1. Cut back American presence in both major theaters of Iraq and Afghanistan because it is crucial to curb our overseas and domestic spending, which is upwards of $1 trillion annually. We need to completely leave Iraq as the President plans and gradually cut our number of deployed troops in Afghanistan by at least one-half. The United States went to war to deter the threat from al-Qaeda and destroy the linchpin of the 9/11 attacks, Osama bin-Laden. Our mission is largely accomplished, and the United States must balance its foreign policy priorities with those of its fiscal house.
The current push in Iraq and Afghanistan is fiscally unsustainable and out of vogue. From Iraq to Afghanistan, the costs and sacrifices continue to mount for Americans, and the American people keep asking themselves what the end game actually is. A recent CBS poll indicates that 7 in 10 oppose efforts to transform dictatorships into democracies, for example.
However, the foreign policy adopted by our elected leaders is much more nebulous. Even in Iraq, we can expect a heavy presence of military contractors in order to carry out reconstruction efforts. The corresponding spending in these ongoing efforts tends to go unaccounted for, however, such as the fraud reported by the Commission on Wartime Contracting in August of this year. The report cited losses of $60 billion to fraud, with some monies even being diverted to the Taliban – the very network American forces are keen on undermining. Speeding up the deferral of more autonomy and authority to civilian and military forces in Iraq and Afghanistan is the most feasible recourse. Thus, to scale back and tighten oversight over the activities of fewer than the 262,000 military contractors currently stationed abroad are best.
In terms of the overall military budget, which stands at over $700 billion, cutting it by one-third, by some $200 billion as Congressman Barney Frank (D-MA) proposes is the best solution. Some may consider this proposal too radical, but cutting back by $200 billion is merely going back to 2005 defense spending levels. These cuts do not disrupt the adaptations in homeland security policy President Bush put into place after the 9/11 attacks as the Homeland Security Department operates under a separate budget. It is also worth noting, as demonstrated by American education policy, sheer spending is not equivalent to improved test results.
2. It is impossible to escape the unsustainable nature of our entitlement system. As outlined already, Social Security and Medicare/Medicaid will eventually subsume the vast majority of our budget if it continues along its projected trajectory. While the government should not cut benefits to those currently on one of the programs, raising the retirement age in light of improved standards of living and life expectancy since the 1960s is the rational policy move to make for those who still have time to structure their futures. The Super Committee should follow the Simpson-Bowles Commission in increasing the retirement age to 69 by 2075 so that Americans approaching retirement age today are unaffected, while at the same time addressing the looming fiscal crisis caused by an impending spike in retirees. Additionally, the Social Security taxable earnings base should be raised to help mitigate the large projected deficits for the Social Security Trust Funds.
As for Medicare and Medicaid, there is no doubt the Affordable Care Act took a bite into entitlement costs, but there is more to be reformed. For Medicare, Congress would be wise to follow the Domenici-Rivlin deficit reduction proposal and consider instituting a limit on growth in per beneficiary support, and for Medicaid, a cap on how much faster the program can grow in comparison to the economy. Republican plans to cap medical malpractice settlements should also be reviewed.
3. Adopting a package of reforms and cuts of duplicative agencies, programs, and subsidies is the sensible approach to adopt. For example, farm subsidies to small, medium, and large farmers account for over $10 billion yearly. The seriousness of our present state requires us to level the playing field in a sense, though, across all socioeconomic classes of farmers for instance. Moreover, we must ensure that lawmakers prioritize the management of the more broad tenets of our economy as opposed to the more micro levels.
By another metric, the GAO reports: “The U.S. government has 15 different agencies overseeing food-safety laws, more than 20 separate programs to help the homeless and 80 programs for economic development.” The report goes on to say that among others, there are 18 federal programs that spent a total of $62.5 billion in 2008 on food and nutrition assistance. However, little is known about the effectiveness of 11 of these 18 because they haven’t been well studied.
Though conducting a thorough audit of the federal government may take eons, the United States can start now by reducing and streamlining burdensome regulations on businesses to grow the economy, and tighten the belt around the federal bureaucracy. This ensures long-term savings.
4. Raising revenue is a necessary component of any deficit reduction plan. Cuts alone will not do the trick, unless they are so drastic as to harm the public. Serious tax reform would be the best path towards raising revenue in a pro-growth manner. Following the “Gang of Six” proposal, the Super Committee should reduce the number of tax brackets from six to three, with lower tax rates for the three groups between 8-12%, 14-22%, and 23-29% depending on how many and by how much tax breaks are reduced like the mortgage interest deduction and charitable giving deduction. Tax breaks like the Child Tax Credit and Earned Income Tax Credit should be maintained so as to not put the burden of tax reform on the poor, but the majority of tax breaks and loopholes should either be eliminated or significantly cut. A report recently released by conservative Senator Tom Coburn (R-OK) highlighted the absurdity of today’s tax system by documenting unnecessary breaks given to millionaires and billionaires ever year.
The corporate tax rate should also be lowered from 35% to 26% in line with the Simpson-Bowles plan to make the US more competitive in attracting companies to set up shop here. At the same time, corporate tax loopholes should be eliminated so that companies actually pay taxes at the proper tax rate, differing from the current system in which 280 companies this year were able to pay at a lower rate.
The Super Committee failed, but there is still the chance that the parties can come to their senses and take this opportunity to cut the deficit. No one of either party will be pleased with all of these ideas, yet no one will be happy with a failure to act. Why not make the best of this politically unpalatable situation and do what’s right for the country by achieving the most sweeping deal possible? If not now, when? We have to start somewhere, and we must start soon.
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