CDZ Serious Proposal for Budgetary Reform

[Skylar]

I think a serious proposal for budget reform would be a spending freeze. Allow inflation to nibble away at the actual funds spent. And give the programs in question ample time to make the adjustments necessary to deal with the roughly 2 to 4% cut in funding each year.

 

[oldfart]

I think most people agree that the federal government cannot continue spending substantially more than it takes in year after year without serious economic repercussions.

Most people might agree, but they would still be wrong. There is no real argument for a balanced budget. The stated goal in the Employment Act of 1946 is to achieve the lowest level of unemployment consistent with low inflation. Today we refer to that goal as the non-accelerating inflation level of employment. By that standard, we are far short of a level of economic output that would provide full employment or adequate growth.

If nothing else, the inevitable return to normal interest rates will become a deficit monster even if the rest of the budget was balanced. (5% of $20 trillion is $1 trillion per year.)

We live in an environment where the Wicksellian natural rate of interest is clearly negative in Japan, Europe, and America. What do you mean by "normal interest rates?"

The only ways to reverse this course are to limit spending and increase revenues.

OK, in a time of zero inflation, a large output gap, and persistent unemployment, we cut spending and increase taxes. The only economic models which are worth a damn say that is the prescription for a depression.
You start from a false premise that the problem is the deficit, which is declining as a percentage of GDP, then ignore the probable effects of the policy you are recommending; and to solve what problem? Inflation that hasn't occurred in seven years?

 

[Cassandro]

I think most people agree that the federal government cannot continue spending substantially more than it takes in year after year without serious economic repercussions.

Most people might agree, but they would still be wrong.

So you believe that the federal government can continue spending substantially more than it takes in year after year without serious economic repercussions?

If nothing else, the inevitable return to normal interest rates will become a deficit monster even if the rest of the budget was balanced. (5% of $20 trillion is $1 trillion per year.)

We live in an environment where the Wicksellian natural rate of interest is clearly negative in Japan, Europe, and America. What do you mean by "normal interest rates?"

Historically normal interest rates are 3% over the rate of inflation.

The only ways to reverse this course are to limit spending and increase revenues.

OK, in a time of zero inflation, a large output gap, and persistent unemployment, we cut spending and increase taxes. The only economic models which are worth a damn say that is the prescription for a depression.

I favor tax models which stimulate economic growth, not slicing up the pie into smaller and small pieces.

You start from a false premise that the problem is the deficit, which is declining as a percentage of GDP, then ignore the probable effects of the policy you are recommending; and to solve what problem? Inflation that hasn't occurred in seven years?

Are you also suffering from long term (7+ years) memory loss?[/QUOTE]

 

[320 Years of History]

I think quite a lot of things regarding government deficits and debt. My plane is about to land, so I will for now just offer this pearl of data and return later to discuss my thoughts.

Source: Policy Basics: Deficits, Debt, and Interest | Center on Budget and Policy Priorities

In the meantime, Happy Thanksgiving!

As impossibly paradoxical as is seems, is it possible that our limp is the very thing that allows us to run? And without a limp, could we in reality run?
― Craig D. Lounsbrough

 

[Cassandro]

The difference between the 1940s and now is that we were fighting enemies that could be defeated. Now we are fighting ourselves, and we are losing.

 

[auditor0007]

I think most people agree that the federal government cannot continue spending substantially more than it takes in year after year without serious economic repercussions. If nothing else, the inevitable return to normal interest rates will become a deficit monster even if the rest of the budget was balanced. (5% of $20 trillion is $1 trillion per year.)

The only ways to reverse this course are to limit spending and increase revenues. The former poses questions of fairness and priorities, but the latter should only be a question of how to maximize long term net revenues (adding other considerations only serves to defeat this purpose).

Spending is determined by two factors: Per capita increases in spending levels (e.g., COLAs) and the numbers of people/programs receiving the outlays. The fairest way to limit spending is to limit (or temporarily eliminate) per capita increases in outlays, because it spreads the burden over the largest number of people and programs. Once this is accomplished, additional priority adjustments could be made on a zero sum basis.

Maximizing long term net revenues is also determined by two factors: Tax structure and regulatory policies. On the income side of the equation, the federal tax structure should only be concerned with determining optimum sustained revenue streams using legitimate economic principles (e.g., Laffer Curve). On the expense side, regulatory policies should place their highest priority on expanding and maintaining private sector employment, since this is the most efficient way of turning tax eaters into tax payers.

It seems to me that these approaches would lessen the current political Balkinization that has prevented any serious budgetary reform. If voters' attention was refocused on a common goal of avoiding impending economic disaster (rather than their immediate special interests), we might be able to restore prosperity to our country.

Thoughts/comments?

Quit trying to cut taxes when we already have deficits. Over 40% of our total debt was accumulated over seven years under Bush and Obama when tax revenues were below 17% of GDP. In a number of those years, tax revenues were below 16% of GDP.

 

[Cassandro]

Quit trying to cut taxes when we already have deficits. Over 40% of our total debt was accumulated over seven years under Bush and Obama when tax revenues were below 17% of GDP. In a number of those years, tax revenues were below 16% of GDP.

This sounds like the Herbert Hoover school of economics. OF COURSE tax revenues go down during a serious recession; the point is to encourage economic growth, not stifle it. Static analyses of changes in tax policy are always wrong because they ignore the fact that companies and individuals adjust their behavior in response to these changes. In most cases, tax revenues go up when tax rates go down.

The principal goal of our tax policy should be to maximize private sector job creation, which would increase the number of tax payers and reduce the number of tax eaters. This is the only way we can reverse the trajectory of our exploding national debt.

 

[320 Years of History]

Quit trying to cut taxes when we already have deficits. Over 40% of our total debt was accumulated over seven years under Bush and Obama when tax revenues were below 17% of GDP. In a number of those years, tax revenues were below 16% of GDP.

This sounds like the Herbert Hoover school of economics. OF COURSE tax revenues go down during a serious recession; the point is to encourage economic growth, not stifle it. Static analyses of changes in tax policy are always wrong because they ignore the fact that companies and individuals adjust their behavior in response to these changes. In most cases, tax revenues go up when tax rates go down.

The principal goal of our tax policy should be to maximize private sector job creation, which would increase the number of tax payers and reduce the number of tax eaters. This is the only way we can reverse the trajectory of our exploding national debt.

??? The principal goal of tax policy should be to fund government operations, not to create jobs, not to motivate behavior. The end of maximizing job creation is the task of innovation in the creation and distribution of goods and services. The profit motive is the reason for innovating and that should be more than adequate for spurring job growth. If the area in which one wants to innovate won't yield enough profit, one should consider other areas.

An endeavor needs to be profitable first, and if it is, it will result in job creation. The income generated from the profitable activity can then be taxed to produce revenue to fund the government. The fact is that there is no such thing in my mind as taxes being an impediment to profitable activity because if an activity is profitable, the taxes paid on those profits are never the majority of the profits. If the profits remaining after taxes are insufficient to sustain one, one has chosen to pursue an enterprise that one either is (1) too inefficient at it, or (2) a poor judge of profit potential. Either way, one should exist the industry and choose to do something else.

 

[Cassandro]

Quit trying to cut taxes when we already have deficits. Over 40% of our total debt was accumulated over seven years under Bush and Obama when tax revenues were below 17% of GDP. In a number of those years, tax revenues were below 16% of GDP.

This sounds like the Herbert Hoover school of economics. OF COURSE tax revenues go down during a serious recession; the point is to encourage economic growth, not stifle it. Static analyses of changes in tax policy are always wrong because they ignore the fact that companies and individuals adjust their behavior in response to these changes. In most cases, tax revenues go up when tax rates go down.

The principal goal of our tax policy should be to maximize private sector job creation, which would increase the number of tax payers and reduce the number of tax eaters. This is the only way we can reverse the trajectory of our exploding national debt.

??? The principal goal of tax policy should be to fund government operations, not to create jobs, not to motivate behavior. The end of maximizing job creation is the task of innovation in the creation and distribution of goods and services. The profit motive is the reason for innovating and that should be more than adequate for spurring job growth. If the area in which one wants to innovate won't yield enough profit, one should consider other areas.

An endeavor needs to be profitable first, and if it is, it will result in job creation. The income generated from the profitable activity can then be taxed to produce revenue to fund the government. The fact is that there is no such thing in my mind as taxes being an impediment to profitable activity because if an activity is profitable, the taxes paid on those profits are never the majority of the profits. If the profits remaining after taxes are insufficient to sustain one, one has chosen to pursue an enterprise that one either is (1) too inefficient at it, or (2) a poor judge of profit potential. Either way, one should exist the industry and choose to do something else.

In our Entitlement Society, most of the cost of "funding government operations" is determined by the number of individuals receiving these entitlements. Therefore, reducing this number is just as important a factor in tax policy as are tax rates themselves. (The fact that income tax rates and revenues have been inversely proportional further underscores this point.)

You assertion that tax policy and economic activity are (or should be) unrelated is completely unrealistic, as well as inaccurate. Why do you think jobs and factories migrate to States and countries with more favorable tax policies?

 

[320 Years of History]

In our Entitlement Society, most of the cost of "funding government operations" is determined by the number of individuals receiving these entitlements. Therefore, reducing this number is just as important a factor in tax policy as are tax rates themselves. (The fact that income tax rates and revenues have been inversely proportional further underscores this point.)

You assertion that tax policy and economic activity are (or should be) unrelated is completely unrealistic, as well as inaccurate. Why do you think jobs and factories migrate to States and countries with more favorable tax policies?

I guess strictly speaking, SSI and Medicare are entitlements, but they are ones for which a great many recipients worked to receive. The personally focused, pure and simple, handouts amount to ~$140 billion.

Could the mix of spending be shuffled to put more "here" and less "there?" Of course. That said, I don't see $140 billion, in the scheme of things, as militating for calling our country an "entitlement society."

Red:
I will accept (because I haven't looked into it) that the rates are inversely proportioned as you say. I won't accept without evidence that their being so reflects anything beyond a circumstantial observation. Just so I can be sure to examine the right things, whose revenues do you mean? Government's, individuals, private sector businesses/non-profits, all of them or some combination thereof?

Blue:
The ones who are my clients and who've actually moved their production operations abroad did so because the cost of labor plus transportation plus was lower in the "moved to" countries than it was in U.S. The tax rates on domestically earned profits were not a controlling factor in the ROI "do or don't do" decision. There's no denying that after making the central business decision based on a legitimate business case, they took advantage of available tax minimization strategies. Indeed, the revised tax position (be it positive or negative) was without exception included in the business case, but the tax opportunities were in none of those cases the driver.

I do have a few clients for whom the sole purpose of our engagements have been to take advantage of technology to implement one or several tax minimization tactics. On the most effectual of those projects, the client has been realizing a net tax savings of about $70 million per year, but the taxes involved aren't federal taxes. Most critically to this discussion, however, the "movements" the clients undertake are all within the U.S.

 

[Cassandro]

I guess strictly speaking, SSI and Medicare are entitlements, but they are ones for which a great many recipients worked to receive. The personally focused, pure and simple, handouts amount to ~$140 billion.

Check your chart. The pertinent number is $2.45 trillion.

 

[320 Years of History]

In our Entitlement Society, most of the cost of "funding government operations" is determined by the number of individuals receiving these entitlements. Therefore, reducing this number is just as important a factor in tax policy as are tax rates themselves. (The fact that income tax rates and revenues have been inversely proportional further underscores this point.)

You assertion that tax policy and economic activity are (or should be) unrelated is completely unrealistic, as well as inaccurate. Why do you think jobs and factories migrate to States and countries with more favorable tax policies?

I guess strictly speaking, SSI and Medicare are entitlements, but they are ones for which a great many recipients worked to receive. The personally focused, pure and simple, handouts amount to ~$140 billion.

Could the mix of spending be shuffled to put more "here" and less "there?" Of course. That said, I don't see $140 billion, in the scheme of things, as militating for calling our country an "entitlement society."

Red:
I will accept (because I haven't looked into it) that the rates are inversely proportioned as you say. I won't accept without evidence that their being so reflects anything beyond a circumstantial observation. Just so I can be sure to examine the right things, whose revenues do you mean? Government's, individuals, private sector businesses/non-profits, all of them or some combination thereof?

Blue:
The ones who are my clients and who've actually moved their production operations abroad did so because the cost of labor plus transportation plus was lower in the "moved to" countries than it was in U.S. The tax rates on domestically earned profits were not a controlling factor in the ROI "do or don't do" decision. There's no denying that after making the central business decision based on a legitimate business case, they took advantage of available tax minimization strategies. Indeed, the revised tax position (be it positive or negative) was without exception included in the business case, but the tax opportunities were in none of those cases the driver.

I do have a few clients for whom the sole purpose of our engagements have been to take advantage of technology to implement one or several tax minimization tactics. On the most effectual of those projects, the client has been realizing a net tax savings of about $70 million per year, but the taxes involved aren't federal taxes. Most critically to this discussion, however, the "movements" the clients undertake are all within the U.S.

I take it that your lack of reply to my "blue" remarks means you accept them as representative of why most companies shift their operations overseas. The Samsung case study to which I've provided a link is illustrative of the type of analysis that occurs and that supports my assertions. Though I didn't mention it specifically, labor union issues may also drive companies to move production; however, not always in such cases is moving offshore a viable option. Other illustrative examples:

• Is It Time to Rethink Your Manufacturing Strategy?
  
• Offshore Manufacturing: 5 Key Considerations
  
• http://scholarship.richmond.edu/cgi...=1006&context=management-faculty-publications
  
• http://www.aibse.org/wp-content/uploads/2013/10/71-Article-4-Abdelzaher-et-al.pdf
  
• http://cluteinstitute.com/ojs/index.php/IBER/article/viewFile/3491/3538

As with my own clients, whereof not one of the studies we've conducted showed that tax effects militated for offshoring operations, the tax effects weren't ever among the key drivers behind why a company wanted to explore moving their productive or (some/all) administrative operations overseas. I cannot find one study or credible business manager that suggests/advocates offshoring production due to the tax consequences (advantages) of doing so. Why? Because everyone pays taxes as a function of income; they do not earn/generate income as a function of taxes. (f(x) = i*x, where i = income and x = applicable tax rate)

If I've misconstrued your silence in reply, please clarify by showing that tax effects are what drive most of the offshoring decisions of which you wrote. If I'm not mistaken, then I ask that you assert your misunderstanding of the scope, nature and impact of tax consequences in the "offshore/don't offshore" decision corporations make.

(I suppose if someone wanted to, they could, in this forum, assert that "life on Mars" motivates companies to do X, Y, or Z, but they'd need to show that to be so before their assertion carries any weight.)

Check your chart. The pertinent number is $2.45 trillion.

Fine if you want to consider as entitlements the payments we all have contributed with the expectation of receiving them back after/upon retirement. I know they are classed that way, and I know that SSI is no longer a "mandated deposit account" of sorts, but still, that's the essence underlying why SSI and Medicare exist: saving a portion of one's regular wage income now so one has a modicum of income once we no longer earn regular wages. That's like saying the money I've invested with XYZ firms is money to which I'm entitled.

Well, of course I'm entitled to it. Should there be any question that I am or whether it should be paid to me? Of course not. That's the reason that section of the so-called "federal budget" is sacrosanct; the government has a fiduciary onus to (1) not lose the money and (2) remit the funds to payees. It's only part of the federal budget because the U.S. government is the administrator of the program.

That's very different from being "entitled" to receive "stuff" in spite of having done little/nothing, other than having no/paltry means of support, to receive it. It's for that reason -- substance not labelling -- that I left out the SSI and Medicare portion of what is labelled in the chart as "mandatory spending" and that you refer to as entitlements. I realize those two components of federal spending is labelled as "entitlement" but the absence of discretion in spending that money is why I didn't include them earlier. Spending on things like food stamps and welfare is, while not entirely discretionary, is far more adjustable, as it were. We can't opt not to remit the contributions of payees into the FICA, and to a lesser extent, FUTA programs, but we can opt to increase or decrease the sums (AFDC, TANF, SCHIP, etc.) made available to welfare recipients because we have a moral/ethical responsibility, not a fiduciary one, to the recipients of those funds.

 

[Cassandro]

zzzzzzzzzzz