Redstate

By BrooksRob Posted in Taxes — Comments (0) / Email this page » / Leave a comment »

The President, all the presidential candidates of both parties, and just about every Senator and Congressman are aware of two realities: (1) Our nation is heading for a fiscal train wreck over the next couple of decades due to our current debt-to-GDP ratio and the predictable explosion in the entitlement-eligible segment of our population (per current eligibility rules) relative to the segment of workers who face the burden of supporting them, and (2) No politician will propose a serious solution to avert this disaster unless there is an abundance of political cover.

The reason they will not act responsibly is not just because they are irresponsible, but also because they are rational and they know that voters are irresponsible. They know that any serious solution will require real, unpopular sacrifices in terms of substantially higher taxes and/or substantially lower Medicare and Social Security benefits (e.g,, drug coverage, something Congress recently expanded) and/or eligibility restrictions (raising the retirement age by several years; means testing that would reduce benefits of many in the middle class, etc.).

Congressmen can talk all day about "eliminating waste" like the infamous "bridge to nowhere", but eliminating such wasteful discretionary spending projects, even if achieved, would barely put a dent in the problem. They can talk about simply "growing our way out of the problem" but that would require growth rates well beyond what economists consider realistic, and the growth argument is often used as a justification for enacting tax cuts or opposing tax increases (such as allowing the Bush tax cuts to expire), despite the fact that even supply-side economists (including the President's Council of Economic Advisors, Treasury Secretary Henry Paulson, Bruce Bartlett, Gregory Mankiw, Bernanke, Greenspan, CBO, and others) agree that, given current tax rates, lower taxes result in much lower revenue than would otherwise be recieved. So they either offer unrealistic painless solutions or they acknowledge in the abstract that we need to "fix" or "reform" or "save" Social Security and Medicare without coming close to concrete, but politically-toxic, proposals. And the result is a perversion of Darwinism: survival of the least responsible.

As painful as the solutions will be, all agree that the pain will be less if we act sooner than if we act later, so we must provide the necessary political cover immediately. Congress must establish a non-partisan study group (a commission) to develop several alternative plans with various trade-offs among sacrifices in spending and taxation to achieve prudent ratios of debt-to-GDP and unfunded liabilities-to-GDP, using dynamic scoring with conservative assumptions. Then the political fight can proceed over which sacrifices should be made, politicians will be compelled to choose among alternative fiscally-responsible plans rather than skirt the issue, and an informed public can vote accordingly, based on each voter's priorities among overal taxation, progressiveness of tax rates, investment vs. labor income tax rates, overall spending, budget allocations, etc..

This study group should be chaired by a figure who is highly respected by both parties and the public, such as Alan Greenspan, and members of both parties should lend strong, public support to this group in advance of its presentation of alternative plans.