The Budget.

[EWSoccer64]

The new budget proposed by President Obama is breaking all sorts of records.

The revenue is only $150 billion more than the payment on entitlements like Social Security and Medicare/caid, and interest on the debt.   The $760 billion defense budget and $670 billion in "discretionary spending" are almost entirely deficit spending.

Revenue is $2.567 TRILLION dollars.   Spending is $3.834 Trillion.   Deficit is $1.27 Trillion.   Federal Debt (aside from unfunded liabilitiies) is scheduled to increase to $15 trillion, approximately the total of the expected Gross Domestic Product for the nation this year.

For those who want to blame the deficit on the spending on defense and the cost of the war in Trashcanistan, the defense outlay is about 5%, which is on the low end of defense spending in the last 70 years. 

Any projected freeze on the $670 billion in discretionary spending will have a minimal impact on the long term budget deficits and constantly escalating debt.   I am not aware of any nation that once they have broken the threshold of 100% GDP in national debt that has ever come back without a government currency reevaluation.   

Historically, it is interesting to draw paralells with Argentina in the 1930s, where a basically first world economy (10th largest in the world) was destroyed and became a 3rd World economy.   Or one can take a look at Spain in the late 1500s and 1600s, or France in teh century before Colbert.

[EWSoccer64]

Clearly the answer lays in two parts, increasing revenue and decreasing spending.
Without defaulting on the debt, there are two areas of spending, discretionary with is about 40% of the budget and the ever increasing entitlements that are 60%.    And defaulting on the debt payments would make little practical difference with the budget in the shape it is in.

Now, if we kept entitlements the same as they are now - froze them - we would have $150 billion to parcel out for defense and all domestic and international policies, plans and spending.   That is foreign aid, disaster relief at home and abroad, jobs programs, payments ot local governments, science, global warming, roads, education, alternate energy, NASA, farm aid programs, WIC, some unemployment plans and all of defense.  Also FBI, National Security, Air Traffic Control, Customs, immigration, Justice Dept, Prisons, CIA, counter-terrorism, EPA, BATF, and all the rest.   SEC, Secret Service, Treasury Dept, Army Corps of Engineers, White House operations and everything.   

To make the budget balance out of "discretionary spending" we would have to slash every program on average about 85%.   

On the entitlement side, we have about 60% of the total government spending.   And even so, the current program is not spending as much as it is SUPPOSED to.  (Medicaid/medicare not reimbursing like it is supposed by law).  And this side of governement spending has been growing faster than the rest put together (even including the "stimullus" package) over time.

If one were to take the hard core conservative approach or the libertarian appraoch and cut $100 billion out of the $670 billion in discretionary spending, that would still be a drop in the bucket.

[EWSoccer64]

Revenues -

The projected revenues - based on some rosy economic expectations, at that - project $2.567 trillion in federal receipts.  That is about 1/6 of the total GDP.   That is without Obamacare.  $1.12 Trillion from Personal Income taxes and $935 from Social Security, Medicare and retirement plan receipts.   Corporate Income taxes are about $300 billion.  $125 billion in minor things like estate taxes, customs receipts, fees and liscenses.
Doubling the personal income taxes alone would not cover the current budget deficit.  Social Security and medicare fee increases would likely fall most heavily on the lower income and the middle class, but be felt most heavily on the lower income.   
Raising Corporate income taxes has a variaty of negative consequences.   First of all, it amounts to double taxation, since dividends are already taxed at the personal income levels.   Then there is also the negative impacts of driving companies and jobs offshore, lowering investment rates inside the USA (and hence job creation goes down as well), and the not inconsequential lowering of value of company stocks.   This lowering of value of stocks and decreasing of dividends hurts not the big billionaires so much - they go off to a more business friendly place like Hong Kong or India or Canada or Australia, etc.   It really has an impact on retirement accounts, from the big pension funds to the individuals like my grandmother who have been saving for retirement and have their retirements invested in various ways in the market via pension funds and annuities and bank CDs and such.
Some studies show that the raising of corporate tax rates actually causes a negative multiplier in tax revenue. 

Finding new sources of revenue is often talked about.   More efficient taxation systems is also talked about.   For instance, it was estimate in 1998 that more than 10% of the entire US economy was "underground" and consisted of unreported, untaxed economic activity, much of it illegal.  Other reports but the hidden economy at twice that amount.  And the more that there are government regulations, taxes, fees, oversite and taxes, the more of the economy goes underground.

The idea of "cap and trade" otherwise known as "cap and tax" has a real negati ve consequence on economic productivity and on jobs.  It is assured of being a net loss revenue wise to the economy and to the budget.

[EWSoccer64]

Solutions -

First the MICRO SOLUTION, for individuals.

My game plan concerning the economy and the budget mess is the following:
1)  Purchase revenue generating property outside of municipalities with long term, fixed rate mortgages. 
2)  Switch any stock holdings to extraction friendly countries (NOT USA) that specialize in precious metals or less common minerals, or fertilizer components.   Canada, Australia and Chile lead the list.
3)  Minimize exposure to government vagaries, either locally or nationally.   This means not depending upon any government retirement program like Social Security, not depending on hopes of any sort of government health care, like Medicare, not depending on any local governments behaving rationally.   Local governments have an even worse tendancy to think short term than the Feds, in crisis mode.   Look at the mess that California is in, look at the housing situation of NY City.   A local county raised the costs for various mandatory business permits by 400% last year to meet a "temporary shortfall" in revenue.   Cities have a terrible tendancy to impose rent and rate controls, and then wonder why no one is building low and moderate cost housing without subsidies - which require even more tax revenue.
4)   Stay away from keeping important amounts of money in long term CDs and similar vehicles.

The reason behind #1 is that if you ahve revenue producing property, the revenue goes up when/if the dollar crashes via inflation or by execuative fiat.  If you have a long term fixed interest rate, that will likely stay the same.  Imagine your mortgage being cut by 50-90 in a one to five year time frame.

For #2, the idea is to buy stocks in ocmpanies that are headquartered and have business operations in mining friendly countries.  Gold stocks in Australia and Canada, Phosphate, Potash, Copper and Lithium in Chile.  The currencies are relatively stroong and stable, the governments are mining company friendly, and the products will enjoy an ever increasing rise in value and demand.

[EWSoccer64]

The Solution - MACRO-ECONOMIC LEVEL

Objective - to bring the US budget in balance with revenues, to eliminate the deficit, on a sound, long term basis.

There can be no rationalisation of the US Federal Budget without entitlement reform.  There can be no real, consistent increase in revenue without sound economic growth (average of 3-5% a year).    There must be a recognition that the balance of payments (Imports - Exports) is a very key component of the economic health of the country and the finnancial situation.

1)There needs to be:
An increase in the corporate competitiveness by the USA.  The standards of actual worker competitiveness remains high.
A decrease in total imports and (less important, but desireable) an increase in total exports.
A system in place that promotes the creation and dissemination of jobs.
An economic and jobs system that has a clear path of visible upward mobility.
A recognition that the government cannot be all things to all people.  An economic system that encourages participation in overall society.

2)  Methods -
1.  A national 5% consumption sales tax.   This would bring in an estimated $400 billion a year.  Unprocessed or lightly processed food (flour, sugar) would be exempt.  Soda, beer, cheetos, candy, frozen foods would not be exempt.  People would have to learn how to cook if they wanted to save some money.
2. An end to some federal programs.   Give all the HUD and housing projects and such to the local municipalities.  They could then do whatever they wanted with them.  (Like operate them themselves or sell them  or give them to the tennats.)
3.  Increase medicare payments to the statutory levels, quit shortchanging the providers or there will be real shortages.   
4.   Rasie the Social Security minimum retirement age to 70 years old, and decrease all future benefits by 25%.  Call it a longevity tax.
5.  Deport illegal aliens.  Even if they are married, even if they have US born kids.   Then tell the  unemployed and the teenagers seeking work that there are jobs out there mowing lawns, slaughtering beef, picking fruit, etc.  Being maids, working daycare, whatever.   Yes, people will have to move to where the jobs are. 
5.  Steamline government beaurocracy at the local, state and federal levels.  Having six didfferent state level beaurocracies givng out different and sometimes contradictory  requirements (Yes, you have to.  No, you cannot) is very damaging and has a big negative impact on business.  It also promotes corruption.
6.  Impose a wider level of federal direct taxation.  We are right now in danger of having most adults in this country being non-taxpayers.   Terribly destructive.  Even if the new direct personal taxes do not amount to the money the people recieve through various aid programs, it is psychologically important.
7.  Phase out subsidies for farms, and farm control  policies.
8.   Have a 12 year plan for conversion to natural gas for fuel and power.   Start with masss transit and move onto personal automobiles.   Removing the import of oil to the US economy would create hundreds of thousands of new jobs and save $300 billion or so in foreign purchases every year.  That would help the economy, help the enviroment, help the exchequer, help the trade deficit, help the dollar.
6.  Federal standardization of nuclear powerplants in 3 sizes, witha waiver on most enviromental impact analysis and prevention of blackage lawsuits on those 3 types, once OKed by industry and the government.   
7.  Useage of Federal Prison Population in federal lands de-desertification projects.  And the like.
8.  Massive restrictions on the use of derivatives in the banking and finnancial industries.  size limitations on re-insurers.  Ending bank activities in brokerages and the like.
9.  Decrease of finnancial aid to college students by 10% a year for the next decade.  Increase in the amount  of college money given out to servicemembers.
10.  Increase import duties to pay for costs for inspection, permits, fees, and such.
11.  Imposition of countervailing rules.  That means if an American is not allowed to do something or own something in another country, those people are not allowed to do the same in the US.
12.  More later.

[EWSoccer64]

Backdoor taxes to hit middle class
Terri Cullen
Mon Feb 1, 2010 4:09pm ESTRelated NewsHighlights: Obama budget sees deficit soaring in 2010
9:08am EST
Obama to address voter fears in State of Union
Mon, Jan 25 2010NEW YORK (Reuters.com) --The Obama administration's plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.
<<<

http://www.reuters.com/article/idUSTRE6105ON20100201?loomia_ow=t0:s0:a49:g43:r2:c0.202275:b30185980:z0

Even with the tac increases gaining the government a projected $1 trillion in revenue over the next decade, that is still only 10% of the decade long budget deficit.
More than a drop in the bucket, but not much more than a ladle full.

[Left Foot]

Good stuff EW.

What about campaign finance reform though? You ain't gonna get hardly any of this stuff in the United States of Exxon.

I would have thought that some ideas might be out there to address a health care system that costs twice as much to deliver services and produces higher infant mortality and lower life expectancy than most other first world industrial states and places an ever increasing insurance cost burden on business and wage earners alike.

Maybe I missed it....

[EWSoccer64]

Good stuff EW.

What about campaign finance reform though? You ain't gonna get hardly any of this stuff in the United States of Exxon.

I would have thought that some ideas might be out there to address a health care system that costs twice as much to deliver services and produces higher infant mortality and lower life expectancy than most other first world industrial states and places an ever increasing insurance cost burden on business and wage earners alike.

Maybe I missed it....

1.  Campaign Finance?  The law was well intended, not well written, and not constitutional.  Despite Obama's Latest Lie at the State of the Union, foreign corporations are still banned by other laws from election financing. (Except the Chinese govt, which famously helps out Bill and Hill and Algore).  I have no trouble with corporations having full say if unions are allowed to.

2.   Health Care?  Your talk about infant mortality and life expectancy is apples and oranges.   Take a look at the demographics involved.
In terms of quality, just this morning I read about the Canadian PM coming to the USA for medical treatments.   A pretty damning arguement against socialized medicine, even if anecdotal.

But since you bring up health care, apparently - I have heard this but not read it yet - the Clinton Budget has the Senate Healthcare reform package in it.   You know, where they collect money for  4 years while offering reduced medicare services before the "reforms" start to kick in.   So the budget mess may be far worse than we are being led to believe.