Sunday, May 24, 2009

Here's Your Answer...

My dear professor,

Here, as promised, is my answer to your challenge.

Currently, federal spending projected for FY 2010 amounts to 3.997 trillion dollars. Revenue is projected to reach 2.156 trillion. This yields a projected deficit of 1.841 trillion. Add to that (at your insistence) a necessary surplus of .608 trillion, and your goal can only be reached by a combination of spending cuts and/or tax increases which must total 2.449 trillion dollars. Are you insane?

For reference, I could entirely disband all of our military forces, scrap every weapon and still not achieve half the required difference. I could as well anesthetize every person in Cleveland, remove their vital organs and sell them on the black market - or seize all the treasure of all of Ireland's leprechauns - or tax a politician a hundred dollars every time he or she breaks a promise and... oh wait, I take that back, the tax on politicians alone would probably pay off the national debt in about 26 seconds. Ye gods man, what manner of hallucinogen interfered with your capacity to fashion challenges?... and may I borrow some of it?

Moving right along, allow me to point out that Planet Earth is peopled by a species with the strange penchant for believing that a paper cut of theirs is equal in magnitude to a bullet wound in someone else - and nowhere on Earth is this non compos mentis more habitual than in the good old U.S. of A. Here, a thousand abominations come easily to a man's lips in the exercise of explaining why he himself should not be taxed - yet a stunning silence attends his reaction to the taxation of his neighbor. Thus, to imagine today's Everyman would accept the responsibility of repaying the debts of his forebears is quite as absurd as imagining he would object to passing his own debts on to his descendants.

What we have become is a nation of Snuffy Smiths and J. Wellington Whimpys. We will " gladly pay you Tuesday for a hamburger today..." Our heroes - uniformly - are men and women of sudden, desperate courage. Yet we have little admiration for quiet and patient determination, which we consider to be insensate. Not a tenth of a tenth or our 300 million would even consider some small, extended discomfort in the interest of the greater good. To imagine otherwise would be not less than the equal of imagining that a computer would anchor a political revolution on the Moon. But since you owe your existence to that very same speculative device, it would be not more trusting of me to believe that citizens of this country will tomorrow wake up and accept the most fundamental of civic responsibilities, which is to pay for the benefits they have bestowed upon themselves. And now, to work....

First off, I would narrow the deficit gap by raising more money. Here's how:

The U.S. military maintains 800 bases around the world valued at 385 billion dollars. I would close all but a few of these bases (10%, mostly naval) and sell the property for around 80% of its appraised value, which would yield revenue of around 277 billion dollars.

I would thereafter sell to friendly countries - at bargain prices - approximately a third of the U.S. weapons arsenal - including up to 6 nuclear super-carriers, along with approximately 100 other naval vessels - not to mention tanks - aircraft and other assets. Now estimating the value of this arsenal is difficult. But, of the nearly 6 trillion dollars we've spent on national defense over the last 10 years, about 39%, or 2.3 trillion has been spent on procurement. Reducing this figure by 50% to account for wastage, obsolescence and usage, we arrive at a working subtotal of 1.165 trillion. If a third of these assets were sold at half of their original value, this would yield revenue of around 195 billion dollars.

Leaving aside the question of military strategy, is this sale of military armaments actually possible? Certainly it is. World military spending currently stands at almost 1.5 trillion dollars, with the European Union and Japan alone accounting for 360 billion. I see no reason why any of these countries would not jump at the chance to double the value of their arms purchases by obtaining some of the most modern military hardware at half of its nominal cost. As for land and structures, while 277 billion is a lot of money, bear in mind it would be sold to governments and private operators the world over.

I would allow citizenship status to approximately 11 million illegal immigrants currently residing in the U.S., make them subject to full income and social insurance taxes - and allow a 5 year phase-in period to qualify for most government entitlement programs. First year, this would generate around 55 billion dollars.

I would raise the ceiling on social security tax to 125,000.00 and include passive income such as dividends and interest subject to the tax. This change would generate around 25 billion dollars conservatively - and probably much more.

Finally, I would raise income tax rates, generally for every individual earning over 25,000 and every couple earning over 50,000. The rate increase would be progressive - starting at around 1% for earners at the bottom of the scale and come out to something just over 10% for earners at the top of the scale. This would generate an additional 100 billion dollars.

As for spending, I would reduce military spending by 471 billion dollars. Note that this figure is based on numbers on the chart issued with the challenge and would include major cuts in foreign aid. The resulting military budget would come in at 350 billion. Also included in this reduction would be the immediate withdrawal of U.S. forces from Iraq.

Tax enhancements, sales and military cuts so far stand at 1.123 trillion - or 1.326 trillion short of the required 2.449 trillion combination of cuts and increased revenue. But that is not all. The chart on spending submitted for the challenge lists total 2009 tax revenue at 2.156 trillion dollars - whereas the President's budget estimates receipts will total 2.699 trillion. While this latter figure may be optimistic, note that actual tax receipts for 2007 came to 2.568 trillion. Therefore I believe the chart itself is wildly inaccurate - and that tax receipts - at present rates, will amount to at least 2.6 trillion dollars. By correcting this mistake - (444 billion), the shortfall now goes from 1.326 trillion to 882 billion.

Now for entitlement, discretionary and mandatory spending.

I would reduce direct federal welfare payments by a total of 100 billion and social security payments by 200 billion. This reduces the shortfall to 582 billion. I would immediately reduce the President's stimulus plan and supplemental infrastructure spending to the tune of 537 billion dollars, leaving in place 250 billion for TARP. Now we are only 45 billion short.

Now 45 billion dollars is not exactly chump change, but I would attain this last reduction by a combination of reductions in community development payments (5 billion dollars), the total elimination of earmarks (7.7 billion dollars), cost saving revisions in the prescription drug benefit - allowing for the government to negotiate drug costs (35 billion dollars) and government subsidized housing (a 20% reduction of 21 billion dollars). These last reductions put my plan almost 23.7 billion dollars over the challenge.

Let's review.

First, to be kind, I come up with a great deal of additional money (444 billion) simply by pointing out an accounting error in the revenue chart. This may be the "cheating" which you referred to in your original challenge. Mia Culpa - but I still stand by my plan - since it is the result of an exercise which you intended more as a vehicle to provide Steve and I with profound insights into government spending than as a means to solve the problem of the debt in the first place. And this leads to my second point.

Economists are going to argue incessantly over whether or not the United States can "grow" its way out of the crushing federal debt we are continuing to accumulate. To any man who earns all he spends and spends what he earns responsibly, these arguments are patently absurd. To such a man, it is plainly incomprehensible that government is beyond the ordinary rules which apply to the financial well being of individual citizens. Would such a man consider it moral to spend for his own ease and comfort the earnings of his sons and daughters - or theirs? Of course not. But that is exactly what government does when it spends more than it takes in.

Even if some Draconian plan were adopted tomorrow by which government proactively pays off our collective debt in 30 years, as you want, I will probably be dead by the time the final payment is made - and young men and women who are not even alive today will be making it.

So, the most important insight this exercise has given me has everything to do with morality and nothing to do with economics. A good father or mother will work long hours and make endless sacrifices for the good of his or her children. As citizens, we should demand that our elected representatives in government have the guts to hold us to the same standard.


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