Saturday, February 19, 2011

Isn't It Grand?

The Villager rumor mill churned out a real humdinger last week, which was that a "grand bargain" is in the offing.  Recovering economist Duncan Black provides the appropriate reaction in his usual pithy manner.  A number of other people weighed in, including Black two more times, Digby, Drum, Klein, Benen, and Day again.  I agree with the two basic reactions: it's unlikely to happen, and it would suck if it did happen.

The fact is, any such bargain would bad for the country and its citizens.  At this point no amount of cutting alone can close the budget gap without basically eliminating a large number of government functions.  A lot of conservatives argue that government shouldn't be doing much of what it currently does, but they are as wrong about that as they were about weapons of mass destruction in Iraq.  On the other hand, the budget can definitely be balanced in the short term without too much difficulty by cutting one area - defense - and raising revenue.  And that revenue can be raised with minimal harm to the lower and middle classes.

Here's the current situation.  As recently as 2008, the Federal Government collected 18.8% of GDP in taxes.  Receipts have fallen to a projected 14.8% for the current budget year.
And here we are with a budget that leads to a constant debt ratio.  How did we get here all of the sudden?  Security spending (Department of Defense, Department of State, Department of Homeland Security, and about 2/3 of the Department of Energy) was cut by 1.4% of GDP.  Revenue was increased via two new taxes (carbon and transaction), reforming of the corporate income tax, and hiking personal income taxes on the wealthy.  The SS portion of F.I.C.A. also goes up once (if) the idiotic payroll tax holiday ends.  The carbon tax is regressive, but in the long run the poor and middle classes would be better off paying it, and not having other programs cut or eliminated.  And even after the tax increases, the total federal, state, and local tax burden in the US would be lower than just about every other industrialized country in the world.

Some things to note:  I'm not saying that this would be popular. Nor am I saying it has any chance of passing Congress.  Nor, finally, am I saying that the long-term budget problem - which is almost entirely due to out of control health care costs - would be solved.  The point of these two graphics is simply to point out that the current budget discussion as it is presented in most of the media is entirely fraudulent.

No comments: