Economy

What’s the long-term solution to federal budget deficits?

Jon Gordon Apr 13, 2011
43

A stopgap budget deal that cuts $38 billion from the federal budget prevented a government shutdown for now. However, budget problems are likely to confront the federal government for years to come, as economic growth remains a challenge and the American population grows older. Today’s Question: What’s the long-term solution to budget deficits?

  • Zeke

    The problem is driven mainly by expected increases in health care costs. Ideally the president will propose a set of policies that would become effective down the road when the economy can handle it better, and directly address the health care cost issue. But no matter what is proposed the actual budget cuts — constrained as they are by the political reality that what needs to be done is highly unpopular — are likely to come too soon, and fall well short of what is needed to make progress on the long-run budget problem.

  • Dianne

    The long-term solution first requires a change in our mindset as a nation. We need a better understanding of our nation’s budget and we need to define our responsibilities and goals as a nation. Actions that need to be taken include rewriting the tax laws and better funding of education.

  • Steve the Cynic

    Quit electing extremists who pander to their parties’ bases.

  • bsimon

    Quite simply, we have to live within our means.

    Less simply, living within our means can mean carrying debt. As we’ve seen in the foreclosure crisis, it is not borrowing itself that is inherently good or bad, but whether we’re borrowing money that can reasonably be expected to be repaid. Our national debt is slipping towards that level that is going to be difficult to pay back.

  • Clark

    1, Reduce long term entitlement spending as it is not sustainable.

    2. Change the tax code to a flat tax with two or three brackets and no deductions. No mortgage deduction, child care deduction, capital loss deduction.

    3. New flat tax will apply to all income, earned, interest, dividend and capital gains so all income is taxed at the same rate.

    4. New lower corporate flat tax with limited offsets.

    5. Raise the retirement age for both medicare and social security.

    6. Cut defense spending in a non political process so we are not building military aircraft we don’t require just to benefit a specific congressional disctrict.

    7. Not everyone belongs in university. University education has become a joke and devalued. If you are not qualified, yes this will require entrance exam similar to Germany, France and the UK, then you can attend trade school.

    Understand the country is comprised of freeloaders, both individual and corporate, who will be impacted by these decisions. The more they scream, the better for the country at large.

  • Kevin VC

    We have had our taxes flattened since the 1950’s, and accelerated during Reagan and Bush era.

    This has had a direct reflection on the loss of the Middle income America that has been the base line for the economy in our country.

    As the rich get to keep more and more of what they earn, hording it, they give less and less out. Giving a tax break to the rich have never shown a increase in the number of jobs in America.

    It is clear we have a problem of Corporate and Plutocrats controlling the minds and hearts of the Government interests. When people say they do not trust government, when you ask them to cite why, each is directly tied to a give away to a corporate greed interest.

    Anyone worried about a tax increase who knows the basics of math will realize this is the top1-2 percent of America that I am speaking of. Why should they dictate that the vast majority of the expense of the government be on the back of the real hard working Americans who are already barely scraping by?

    They are in some cases paying even less then the average joe!

    Its not a budget cutting problem, its not a budget spending problem, its a burden problem that has shifted almost completely to the last of the middle class and poor!

    I say, if the Conservative GOP Tea Party people are honest, then switch to the budget and tax policy of the last Conservative President that was able to balance the Budget. That would be the 1950’s under Dwight D. E. were about 90% of their income was taxed.

    Sorry they do not have the balls to do such. And yet that really was a golden age of growth in the country.

    Heck I would even settle for the time we had the largest expansion of jobs under ANY president, that would be under Clinton. And were on the way to paying of the Deficit.

    So sad Bush gave a HUGE tax break to the rich we are still paying for, deregulated the Banking industry, and basically ruined the US.

    And now we have a congress not willing or scared to end the tax break for the rich, want to allow the banks to do what they did all over again, and worse now put the Elderly into the street and force them to figure out how to bid for insurance to pay for these tax give-a-ways to the rich!!!!

    Come on!! They really did a number on the Tea Party people, told them they were not for the way Congress has done things before, and suddenly THEY ARE HOW CONGRESS HAS DONE THINGS BEFORE!!!

  • A A combination of program cuts (likely) and new revenue (not likely) is imperative. Much like the family who cuts spending AND takes on part-time work to add revenue to the personal budget.

  • steve

    we have to have a different mindset economize be proactive stay positive give to others be patient change our mindset as a nation dont worry be happy think broadly and believe in oneself!

  • Kevin VC

    I would also like to point out the control of the facts seems to be at issue.

    * Attacks on Unions, which their decline mirrors the decline of the middle class in parallel.

    * Attacks on American Public media, which is Fact Based news reporting. Something Fox News NEVER has….. correction …. RARELY HAS crammed in between their lies, entertainment disguised as news ‘commentary’, and flat out pandering to the main goal of Mr Murdock to serve as a mouth peace for the rich.

    * Flat out lieing in the middle of Congressional Hearings knowing most of the media will not fact check anything because their staff have been cut in the current day and age.

    As the Rich saw a 29% increase in income in 2009, the rest of america saw only 1-2% on average.

    The money banks were told to help small businesses with they used to pay off their loans instead with the American People. And then gave themselves the 29% pay bonuses…

    Heck GE, one of the most profitable companies does not pay taxes, in fact they are looking to get a multi-million dollar refund to tax loop holes.

    The top 10 companies in the world are all Oil companies. ALL of them where they also are getting away with tax loop holes and literally making TRILLIONS. (Not a exaggeration)

    Its not a budget cutting problem. Its the rich getting away with robbing hard working Americans. Time to look at what is happening America, your hard earned taxes are being handed over to the rich.

  • Scott

    We need to stop pretending that the services that people want, value and expect can be had on the cheap. Medicare, Social Security, roads, schools, police and more are all government services people use, want and need. We need to stop pretending that government is the enemy and recognize that we as a society need to fund the services we value.

    It’s time to raise tax rates on the highest earners who are getting progressively richer while the rest of us are squeezed. These people at the top are only rich because we have a strong society. If we are going to remain a strong society those who have been disproportionately rewarded need to start paying their way. This recognition that the rich need to stop getting off on the cheap would go a long way to dealing with Federal budget issues.

  • Chris

    It is time for older people to start listening to young people or at least allow them a seat at the table. The old of the country got us here, fine, but the young have to have a hand in solving the problem. After all we are going to be paying for these old mistakes for a long long time (blood and treasure).

    This goes for businesses too. I am sick of hearing how inept the youths are. We are different but different might just be what we need…think about it.

  • Larry M.

    #1. We need to pass a Constitutional Amendment stating that corporations are not citizens and any speech (money spent) by them is considered commercial speech and therefore regulated.

    #2. Realize that insurance companies are very inefficient providers of health care with overhead (non-medical spending) of up to 30%. Medicare overhead is about 2%.

    #3. Learn the difference between pork and investments in our society, have strict procurement and bidding policies that favor tax payers’ interests. Often cultural spending pays back more than it takes with related local spending.

    #4. Regulate the cost of prescription drugs involved with all government programs.

    #5. Realize the costs involved in the upkeep and building of our highway and road projects and then fairly judge the costs of mass transit.

    #6. Cut military spending, here is an area where procurement and bidding and subcontracting are basically out of control.

    #7. Stop thinking short term.

  • The Big Dog

    Easy fix.

    1. Stop having so many children.

    2. Mandatory death at 60.

  • Brian

    First and foremost we need to end the wars and cut military spending. Last years military spending was $698 billion. U.S. spending on the military last year far exceeded any other country. We spent six times more than China — the second largest spender.

    Second, close most of the 135 military bases we have world wide.

    Third, stop all foreign aid, half of all our aid goes to wealthy country Israel, that has no debt.

    Fourth, End The Federal Reserve, which is the major cause of most of the downfall of the dollar. Back our money with Gold again.

    Fifth, arrest some bansters that are responsible for what has happened to the economy. We should never have bailed them out!

    Iceland just voted AGAIN, not to bail there banks out, we should have had that choice!

  • James

    We need to stop being the global police force…. That alone would put us in the black in two years.

    http://en.wikipedia.org/wiki/2010_United_States_federal_budget

    Keep our current military force and use them to protect our borders. Anything… and I say ANYTHING in or out gets shot and killed. No judge no jury… just dead.

    That would effectively halt all illegal drug traffic and illegal immigrants.

    Oh—and we need to stop being a Nanny state …. Get off your butt and get a job…. Any job…. If you can’t find any jobs make your own.

    ∑

    DTOM

  • Neil

    We need a constitutional amendment mandating balanced budgets. If we want it we have to pay for it. If we don’t want to pay for it, we can’t have it.

  • uptownZombie

    take away ALL tax deductions.

  • Jennifer

    If those making the decisions were really serious about reducing debt, they’d start doing two things:

    1. Realize that government is not in any position to shirk a duty when there’s a problem the public wants solved when no other institution can or will step in to fix it. If the private and nonprofit sectors COULD level the playing field between the rich and poor, I would have hoped it would have happened by now.

    2. Anyone needing a bit of cash isn’t going to simply cut back on their spending. They might also consider – after donating so much plasma that they can’t go back until a certain time period has passed – selling something, or taking a second job. The right may not want higher taxes, but if they want debt to go down, they need to reach into their deep, well-padded wallets and help out.

  • Sara

    Part of the Preamble of the Constitution reads that we will “promote the general welfare”. It is time for the rich, who have prospered while others have suffered, to realize they must play a part in promoting the general welfare.

    Cutting spending alone will never work, new revenue is needed as well, so how about a flat tax structure with no deductions, no loopholes, no holidays or island havens allowed for anyone — including recently humanized corporations.

  • Mary

    From personal experience I can say cutting spending on things you don’t need along with increasing income is the only way to live within your means when your means change. Our country went from surplus to extreme debt. Many people in our country have experienced this in the past few years. My husband was laid off from a 100K+ job and we had to survive on unemployment. We cut everything we could think of and then worked on increasing our income. My husband got his law license back up to speed and started a small practice while looking for a job to replace his old one. I took a job cleaning at a nursing home. We lived this way for a year until my husband found a replacement job. We made it, it wasn’t easy and it wasn’t pretty. We’re still loosing our house so it wasn’t without permanent damage. I know this is a typical story and I think our federal government should pay attention to these stories and apply the lessons learned from them to our federal budget.

  • Matthew

    First the facts:

    History of the highest marginal tax rates under 20th Century Republican Presidents: Eisenhower 91%; Nixon 77%; Ford 70%; Reagan 50%.

    Currently our highest marginal tax rate is 35%, and only income that exceeds around $330,000 is subject to that rate.

    In response to these historical facts, the GOP just today started to use the sound bite that, “although the highest marginal tax rate in the early 60s was 91%, today we have the same tax revenue as measured by percent of the economy.” THAT, MY FRIENDS, IS A LIE!

    In 1960 when we had a 91% highest marginal tax rate, our tax collections represented 18% of our GDP. Today, our tax collections represent 14% of our GDP. What makes this fact even more jaw dropping is the fact that our country was booming in the 1950s and early 60s, so our GDP then was grossly inflated. Today, as everyone knows, our GDP is at a near low in the wake of the Great Recession. Furthermore, in the late 50s and early 60s, our country had 20 workers for every one retiree. Today we have 3 workers for every one retiree. Therefore, that our tax collections are four percent lower relative to our GDP should be a staggering statistic for everyone, Democrats and Republicans alike.

    But again, the GOP talking point… It’s a lie!

    Bottom line: we need to upwardly adjust our highest marginal tax rate that is applicable only to those whose adjusted gross revenue exceeds $330,000. We need to eliminate tax loopholes that allow Bill Gates and Warren Buffet to pay an effective tax rate of around 12% (significantly lower than the rest of us).

    On that point, has anyone ever noticed that Steve Forbes and other Republicans no longer lobby for a flat tax? Ya know why? Because in the wake of the two Bush tax cuts in ’01 and ’03, we are left with a regressive tax. A flat tax would actually hurt millionaires and billionaires.

    Mind you, I am a former die-hard Republican who still considers Goldwater and Reagan his political heroes. Furthermore, a tax hike would hurt me, personally. But I’m not willing to drink the Neoconservative/Tea Party Kool Aid at the expense of the well being of this nation.

  • Jim Shapiro

    Dear Matthew –

    Have you ever considered being a mentor? You could teach history, economics and ethics.

    Please think about it. For the good of our children, and our country’s future.

  • Kirk

    ANY solution should start with movement from BOTH sides. Where does one party get-off with their insistance that all motion will be toward their plan only. This is not politics, it is bullying at its worst.

    I guess when it comes to this kind of unreasonableness, quid pro quo may be the only answer. For every budget cut dollar, there will be a corresponding cut in the tax breaks for the richest taxpayers. PERIOD.

  • JonH.

    Do what Franc e does.

    France spends half of what we do for health

    care, and gets better results. If we adopted their system, US citizens would save a total

    of about $1 TRILLION. At about a 20% tax

    rate, this yields $200 billion, with the average

    citizen left with a few extra thousand dollars

    free per year.

    Nobody is attacking France. If our per-capita

    military spending was like France’s, we’d save about $500 billion. O.K., that’s unrealistic, but we should be able to see at

    least $300 billion.

    No more bailouts. Quantitative Easing II was

    about 1.8 TRILLION over 2009-2010 (~$3000

    per man, woman, and child in the U.S.). This

    year it will be about $600 billion. Stop it now.

    End the Bush tax cuts, and we’re in the black.

  • Gordon near Two Harbors

    1. Require means-testing to see if folks really need government benefits.

    2. Restore the corporate contribution to revenues.

    3. Severely restricting welfare benefits to able-bodied people who refuse to work or have kids they can’t support. (Legally require fathers to support their children).

    4. Increase tax rates on wealthy individuals.

    5. Eliminate duplication of government services.

    6. Overhaul the healthcare system.

  • David

    Fire every politician and start over. Otherwise it’ll just be more partisan rhetoric.

  • Mary alice Harvey

    We need to look at the deficit through a long-term lens, instead of looking at only short term fixes.

    First, we need to overhaul the tax sytem, which will include a evualuation of tax loopholes, and having high income people pay a fairer share. Second, we need to look at ways to reduce spending in the long haul, which means reducing runaway “defense” spending, including lots of things especially more than 100 military bases around the world. It means bringing down the cost of health care, which means spending money on prevention, — health education at all age levels, low-cost neighborhood and community clinics to provide preventative and supportive care as well, as health care that is based on best outcomes. Mental health care that not only lowers the long terms costs, but costs to the justice system. Spending money up front on education will also save money over the long term. That is the way we need to look at the problem.

  • GaryF

    Funny how the insatiable beast called government never has to go on a diet.

    It’s always a revenue problem and not a spending problem.

    Problem is, when your spending someone else’s money, it’s never enough.

  • Philip

    Fire any member of Congress who’s a lawyer and replace them with an accountant.

  • Linda Wongstrom

    I don’t see why it couldn’t all just get simple and have a percentage across the board for all citizens unless income is under a certain amount. For example no taxes for a single person under $25,ooo and a couple under $50,000. All others pey 15%. The rich will pay more and the middle class will pay less. Not exemptions and no loopholes.

  • Floyd

    End spending on all social services to include education. End any government control over business to include environmental contols. Reduce employee wages by 25% over the next five years and 50% over the next decade. Go to a flat, consumption, tax. Ammend the Constitution so that only our military may not be deployed outside the United States time of war. Return the National Guard to being a local militia. Disband the Army, Navy, Air Force and Marine reserve forces. End veterans benefits. Reward those who increase their income with lower taxes. Increase the taxes on those who use government social service in any manner. End the corporate taxes on income, property, and most services. Declare global warming asa fraud. Withdraw from the U.N. demand that it’s offices in the US close. Deport all illegal aliens and end all immigration to the U.S. Save money by making English not only our official language, but outlaw the teaching and speaking of foreign languages within U.S. borders. Deport resident aliens. End Green Card system. Privatize our parks, transportation system, and all infastructure. Seperate non-performing students from college prep education systems. Require that they either earn a trade or join the military for life! Repeal all Constitutional amendments passed since the Bill of Rights.

  • Katheryn Schneider

    We need to stop thinking that we live in a world of scarcity and realize that we live in a world of abundance. We change what we measure. Then we would realize that we aren’t in debt. We actually have lots of assets. The economy is measured using one tool, GDP (Gross Domestic Product.) All that measures is how much we produce. We can grow more jails and the GDP grows.

    If we were able to believe that we lived in a world of abundance, we would no longer be afraid of what we are loosing but know that we have lots to give. That’s how we solve the deficit.

  • Bake sales, or sell magazine subscriptions.

  • Bruce

    To followup Sara’s comment on the Preamble (Promote the General Welfare), we should follow the principles set forth in the Preamble of the Constitution, namely (and not necessarily in that order):

    1. Provide for the Common Defense

    2. Promote the General Welfare

    3. Secure the Blessings of Liberty

    and cut any programs (or turn over to the states) that don’t fit into those principles. That outlines the purpose of our federal government. Once we’ve done that, set a simple, progressive tax formula, WITHOUT all the loopholes, that meets the budget needs of those programs plus a SMALL percentage for emergencies and call it good.

  • Steve the Cynic

    This morning I wrote the following answer to Today’s Question:

    “Quit electing extremists who pander to their parties’ bases.”

    After reading all the nutty, simplistic, and/or ill-informed answers being posted here today, I sincerely doubt we’re capable of electing any better politicians than the ones in office now. If you want better government, be a better-informed voter and a more involved citizen.

  • Jessie

    No more free babies. No more tax deductions for kids for anyone. No more government support for more than one kid unless both parents receive a v-snip or tube- tie. You’re allowed one free gift – more have to be earned. Back to First Things First – school, job, marriage, THEN family.

  • Peggy J

    Steve the Cynic …. your a poopyhead:-)

  • Eliot

    Everyone needs to sacrifice. Companies like GE that are avoiding taxes, need to pay taxes like the rest of us.

    Parents will need to deal with lower funding for education, by actually taking a more active role in their children’s schooling. Maybe everyone student does not need an iPad, but every student needs to study!

    Oil companies, and other over seas companies will need to fund the military effort necessary for them to ship oil safely. The US population can’t pay for the world’s safe oil supply anymore.

    Farmers and agribusiness will have to live without subsidies to make certain crops artificially cheap. Americans will have to eat less ( oh. wait, aren’t most of us fat anyway?)

    The 1% of the population that now controls 40% of the wealth is going to need to pay its fair share of taxes. If they complain they’re going to move to other countries, buy them airplane tickets.

  • Charlie

    Please read “Taming Leviathan: A Special Report on the Future of the State” in The Economist March 19, 2011. Very thought provoking and fair.

  • Steve the Cynic

    Flattery will get you nowhere, Peggy J.

  • Bobby Hicks

    I strongly feel that whoever sincerely wants to reduce the deficit can start with our greedy welfare recipients who” can’t support” the children they have yet they are allowed to continue to receive aid for the many more children they bring into the welfare system.

    I feel there should be a limit of two children in which are aided by the government and the rest will be on the parents. And the women who in many cases are having children be the same man and claim they don’t know where the father is each time they have children and enter his name on the birth certificate.

    I have seen couples in grocery stores shopping and I have suggested where they might be able to get better prices on eggs or milk and the woman’s reply would be that she is on WIC. The man with her has on greasy oilfield type clothes and boots. Then it floors me to see them go into the parking lots and ride off in new Escalades and other expensive vehicles.

    Our welfare system is one that ,on many occassions, turn out to be generational with so many able bodied women bleeding out budget instead of working and putting something back into the system. They have figured out that the more children I have the more money I receive.

    And the older people who for years have contributed to thes system are considered for losing their rights to receive some of that they have contributed through social security and other programs.

  • Charles Prichard

    President Obama made a wonderful speech yesterday that I thought would be effective at reducing rhetoric of Republican “non-essentials.” I think I should point out that these are not normal times. Solving the federal budget dilemma is an emergency. Cut all the funding for social programs (about twelve percent of the budget,) and you have rioting in the streets, increased unemployment, increased crime of all kinds, more homeless citizens starving, more women with uterus infections, tornadoes, hurricanes, earthquakes, international disasters, three wars going, and you still have not reduced the huge deficit. If anything, it will increase, as will the need to borrow and pay for it.

    It takes years to build a business to profitability. Republicans rhetorically defending wealthy as “entrepreneurs,” calling them the engine of the economy that creates businesses and jobs. Sure, maybe in ten years some will have succeeded in putting their money to work. It is time to take some it, and service the emergency situation that many of the wealthy created in the first place.

    .

    I predict a Republican standoff at raising the debt ceiling, and a default crisis. The Republicans just don’t get it. Every Republican I know is at least half-idiot. Some worse than others, of course.

    It is tempting to sell my cabin so I can buy a new car, and play golf again. Its not the Republican in me thinking that way, it is the idiot.

  • Drae

    The first thing I would do about the budget is educate Americans about what it is in the first place. Such as Charles Prichard. Because social programs are NOT 12% of the budget, as he says. They’re over 40%. That’s more than the military, BTW.

    Recent polls and studies have shown over 70% of Americans don’t know where our money is spent or on what programs. This is why folks think we can balance the budget by cutting international aid and stopping the wars in Iraq and Afghanistan. It’s just not true.

    It’s hard to fix a problem when no one agrees on what exactly the problem is.