Ten Ways to Move the Budget Back Toward a Sustainable Path

Question from the National Journal: “President Obama and his team said recently that the fiscal 2011 budget will represent a credible effort to reduce budget deficits and put the federal government on a path toward “sustainable” deficits …How would you alter taxes and spending to achieve (or at least pursue) that goal? ” 

Here are my ten proposals to move the budget back to a sustainable path (like the one it was on until January 2001):

First, auction off most greenhouse gas emission permits, rather than giving them away to firms (which would confer windfall profits). This is what President Obama originally proposed last February, but it is not in the congressional climat change legislation.

Second, raise the gas tax. Among the benefits, besides raising revenue, would be reducing traffic congestion, accidents, pollution, the trade deficit, and dependence on Mideastern oil.

Third, cut agricultural subsidies to rich farmers and agribusiness, saving money and improving economic efficiency. This is another measure that Obama proposed when he first took office, but that was rejected by Congress.

Fourth, continue to cut expensive weapons systems that the military doesn’t want, but have in the past been been kept because the suppliers are in the districts of influential congressmen.  President Obama and Defense Secretary Gates have, amazingly, managed to do this with the F22.

Fifth, end manned space exploration. We don’t need it. Spend half the money on useful science instead, including research on energy and medicine (and unmanned space exploration).

Sixth, let George W. Bush’s tax cuts for the rich expire as under current law. Of course the Bush plan to eliminate the estate tax completely in 2010 and have it bounce back to its 2001 level thereafter is absurd.  We should instead level out the taxable threshold at some reasonable estate size: a few million dollars, something high enough to de-legitimize the hysterical stories about inheritors supposedly being forced to sell their small farms or small businesses to pay the tax.  (Use some of the revenue in these proposals to fix the Alternative Minimum Tax once and for all. And, in the meantime, continue Obama’s return to honesty in budget accounting regarding the costs of AMT, wars in Iraq and Afghanistan, tax cuts, etc.    Bush’s habitual trick of purposely understating such costs in future budgets allowed him to pretend that we could afford his profligate fiscal policies, which in turn added far more to the national debt than the current recession measures have added.)

Seventh, encourage hospitals to standardize around national best-practice medicine – to avoid unnecessary tests and procedures – using levers such as making Medicare payments conditional on best practices. This is another part of the Obama plan.   (Don’t pursue the logic of radio talk show propaganda, which labels even modest government involvement in health care as “socialism,” because that logic would require dismantling veterans’ hospitals, which provide good medical care relatively efficiently, even before it would require dismantling Medicare.)

Eighth, limit or eliminate the tax-exemption for employer-paid health insurance (as proposed by Senator McCain), at least the cadillac plans which are very expensive but don’t even pay off in health results (as proposed by Senator Kerry).

Ninth, ideally, eliminate the tax deductibility of mortgage interest too. But proposing this would be political suicide. Congress and the public are still virtually unanimous in wanting to tilt the playing field in favor of owner-occupied housing and against rental housing and the rest of the capital stock, notwithstanding that such policies contributed to the housing bubble and crash.

Tenth, to save Social Security, raise the retirement age (just a little), tax higher incomes (just a little), and progressively index benefits for future retirees to price inflation, rather than to wage inflation (just a little).

Originally published at Jeffrey Frankel’s Weblog and reproduced here with the author’s permission.
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One Response to "Ten Ways to Move the Budget Back Toward a Sustainable Path"

  1. Michael Chandler   February 21, 2010 at 1:37 pm

    Here’s an eleventh, create jobs by putting building contractors in charge of promoting weatherization in neighborhood weatherization drives selling $3,000 to $6,000 basic weatherization packages. (Sealing up leaky ductwork and crawlspaces, insulating ceilings and roofs, caulking windows, test and done.)Rather than looking to homeowners to take initiative push from the top down by financing through state energy offices directly to the weatherization contractors and paying off the work through an additional fee on the power bill rather than an equity loan, PACE property tax loan, or tax credit/low income subsidy.Details below:http://www.chandlerdesignbuild.com/files/Market_Driven_Weatherization_012510.pdf