Saturday, April 23, 2011

Spending Limits


From your last comment:

"What percentage of the federal budget do you think is appropriate for military spending? Also, please include the appropriate percentage to be used for direct payments to individuals."

First, since every government program addresses a different set of parameters, I don't believe the more or less arbitrary application of a budget percentage to each program makes any sense whatsoever. In fact, this kind of practice actually encourages waste and inefficiency both in government and private industry, for reasons which should be obvious. Consider when you assign an arbitrary, annual budget limit to any division of any enterprise, its only human nature for the managers of that division to always spend up to that limit, in order to avoid cuts in the next year's budget. Really Steve, I imagine we've both seen this phenomenon at work many times before in our own vocational experience. I know I have.

But since I believe military spending should be no more than half its current level - a decrease which amounts to around from 350 to as much as 500 billion annually, depending on how you figure it - it shouldn't be too hard to calculate the percentage of that against the overall budget.

Direct payments to individuals are a little more complicated, since the question applies to both entitlements and sheer hand-outs. Entitlements first (stay with me here):

For programs like Social Security, Medicare and Unemployment Compensation, I would treat each program as a separate account, calculate their direct, net revenues (over time) and add a reasonable sum for accrued interest. The resulting figures (again, for each account) would determine the level of current pay-out (based on the added assumption that each program should be self-sustaining indefinitely). For Social Security, the level would be fairly close to current levels. For Medicare and Unemployment, the level would be less - in the case of Medicare in particular, much less. How that translates to a percentage against current spending should be easy to calculate.

"Hand-outs" are a different matter altogether. In my opinion, modern societies must somehow reach a balance between the altruistic goal of helping the less fortunate and providing for the continued health of their economies. Too much altruism and the economy which ultimately supports it begins to deteriorate to the point where suddenly, no altruism is possible at all. Too little altruism, and genuinely deserving citizens suffer and die. Personally, I don't believe either of these outcomes to be a worthy testament to the enlightened principles on which our founding fathers erected this magnificent nation.

But, if a man simply refuses to provide for his own upkeep, I don't now or ever have believed government should be responsible for it by default. However, too often we tend to caricaturize this issue. Yes, government does indeed provide millions, if not billions, in hand-outs to undeserving needy people. But let us not forget that billions more are handed out in complex subsidies to otherwise capable individuals and profit making enterprises.

As to genuinely needy people, I believe I would certainly couple welfare payments with some kind of reciprocal work and/or on the job training. Now I've already posted a piece on how government programs like this can turn into nightmares. However, I do believe a workfare program, thoughtfully designed and managed, would benefit both the recipient and government. One proviso: I would have no intention of constructing a program which effectively transforms genuinely needy or disadvantaged people into a class of serfs. My workfare program would have to provide a full measure of dignity and worth to whoever participates.

How much? In terms of percentages, I couldn't say without a great deal more research on the subject. My best guess is that government should learn to apply different models to different situations. People become needy for a host of different reasons - many of which, like physical handicaps, are completely out of their control. Thus, the goal of getting them out of poverty is going to require different approaches. Bottom line though: government should set as a worthwhile goal that no genuinely needy citizen should lack the basic requirements to sustain life.

Now as to "corporate" welfare. OK, first, I'm not going around screaming about how General Electric paid no income taxes last year. If they didn't, its only because they had sharp tax accountants who took advantage of tax law. What we are calling "loopholes" are not unintended faults in tax law. They consist instead of laws which encourage activities which legislators believed would confer some sort of overall benefit - and therefore incentivized them with tax breaks - plain and simple.

As a matter of fact, I don't believe corporations should be taxed at all. Corporate profits are always taxed when they are distributed in the form of dividends. Taxing the profits first, then the dividends as well amounts to double taxation. This doesn't make any sense to me.

But, besides that, I do believe government does have a role to play in partnering with private industry. We need effective action from government on things like energy and health care, to name just two issues, and private industry alone doesn't seem up to the task. What percentage of the budget should go towards addressing these issues, and how should it be spent? I guess that is a little much to add to this already long post. So - more, later...


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