A recent headline "Deficit committee locked in budget stalemate" highlights the need for new, effective membership and leadership in Congress.
Simplistic solutions to our long term fiscal problem, like simply cutting spending — most often focused on those items providing benefits to those unable to provide for themselves, such as social security and medicare — simply will not solve the problem. This is particularly true if one takes off the table any discussion of effective solutions to the elephant in the room: rapidly escalating health care costs.
Instead, a balanced approach is required.
Cuts should reflect our long-term priorities and goals, as articulated in my Principles. All fund transfers from the federal government to state governments should be terminated. Defense outlays should be for defense, not endless, ineffectual adventures that may actually adversely affect our national security. Cuts should not be made to those items fundamental to our long term success: education, infrastructure, research, and regulation of activities to assure health and safety. In fact, it is advisable to increase such expenditures since growth is essential to long term solution to our current situation, and such expenditures catalyze growth. Other expenditures should be protected because it is right to do so, such as veterans benefits, social security, and medicare.
In addition, however, revenue — taxes — must return to historical levels of GDP. The ludicrous notion that by cutting taxes more revenue will be produced has simply been proven false. There is no free lunch; we've got to pay for what we as a society need.
While I favor more extensive changes to the income tax system so it is simpler and more understandable (as discussed in my blog entry "Common sense tax policies", at a minimum the Bush tax cuts should be left to expire, and marginal rates increased for those at the top of the payment range. In addition, however, the solvency of the social security system should be assured by removing the cap on earnings subject to the tax.
Finally, we must address the elephant in the room: rapidly escalating health care costs, but that is another entry.
The developing debacle in Europe shows the perilous position toward which we are heading: historically normal interest rates of 7% are perceived as ruinous, and are. Were we to face that interest rate on our national debt, the interest payments would exceed the defense budget. Our current cumulative debt is manageable, particularly if pay down is undertaken in the current extraordinarily low interest rate environment. Most surplus revenue can be applied to principal rather than interest. If we wait until interest rates rise to more historically normal levels of 6% to 8%, the task will only be that much harder. Unless we contemplate a default on the sovereign debt of the United States, to undertake this task simply requires revenue, and no amount of wishing will make that fact go away. The earlier we take action, the less the eventual pain of that action.
That is why we need change.