To start off today's post, I would like to give a shout out to my brother in law, Joe. Thanks for coming and spending time with us. It was truly wonderful and we had a great time. Next up, the news. A week from Wednesday, our house goes on the market. This means my wife and I will be busy cleaning house for the interim as we try to make it presentable. This also means we need a ton of boxes. Which means I need to find them. It is what it is. I am not looking forward to this. So much work.
Now for the part you've been waiting for (either with dread or hope, I am not sure which I find more frightening), Manic Monday. Today's topic: The Debt limit and the politics around it. Let me start with a quote from a bumper sticker. "Truth isn't always popular, but it is always Right." How could it be any more simple than that. Let's look at the current situation and find the truth in it. Truth: 40% of every dollar the US government currently spends is borrowed. Truth: You can't pay reduce a debt unless you spend less than you make. Truth: You can't reduce your income when you spend more than you currently make. These should be obvious, yet for some reason, the people WE voted for don't understand this. For fear of insulting their constituents they make it easier to get on government funded programs. They add on other programs and increase the area of responsibility. They haven't "created" new programs, just enlarged current ones.
Then they cut taxes (read income). So they didn't really cut taxes, they just refuse to repeal previous tax cuts. Do I want to pay more in taxes? Not really, but the question should really be, will I pay higher taxes now for reduced taxes later. The answer to that will be yes.
The final nail in the coffin in this debate is the fact that, while they are talking cuts, they are meaningless if they don't remove earmarks and special interests. The fact is that government needs to become more efficient. We need to remove waste and have a directed approach.
I have always said, don't complain about a problem unless you can present a solution along with it (I wasn't the originator of this, but I can't remember where I heard it). That being said, here goes. Please note that these are long term solutions and it may take a few years for the effects to be seen and the results to match. The first thing that needs to be done is to increase revenue. Until the debt is paid, we have to increase taxes. This isn't a hope, or a want it is a must. The simplest way to do this is to revert to remove deductions and credits. No matter what you do, people will be angry, but it must be done. We all need to pay. I am not a tax lawyer so I don't know the exact sections to repeal, but I think the best way is to start at a flat 20% tax across the board. We can reduce later when the debt is paid. As for those whose income is such that paying 20% taxes would reduce them below the poverty level, they would be exempt (after all, if we put them into poverty, that would be that much more spending the government would have). As for businesses, they are taxed for 20% of their profits. Thus, they can avoid taxes by expanding the business thus creating jobs, thus reducing unemployment and increasing tax revenues. Obviously, we have to define legitimate business expenditures (a company jet would not be one) so that buying a house for the CEO from business funds is not counted as a business expenditure and thus no taxes paid on that money. Now that we have raised revenue by putting more people to work and actually taxing income, we can move on to reducing spending.
The second part of this, spending reduction, now comes into play. First off, we partially solved it by reducing the number of people on unemployment and welfare by increasing jobs. Now we need to look at other areas. First off, welfare. I have never liked it, but I recognize that there is a legitimate need. The biggest problem I have with welfare is the fact that it makes it easy for people to stay impoverished and becomes a way of life. Welfare should be a stepping stone, not a living. Start with drug testing of those on welfare. If you fail a drug test, you are placed in government funded rehab (yes, I know, one more expenditure, but hear me out), this way when you are sober, you may find a better way to make a living and no longer need welfare. If you fail a second drug test after you complete rehab, you lose welfare. If you are on welfare and you have children, you will only get one welfare increase. This is for the first child, after that, if you can't provide for them, the government will take them and place them into the foster care system until you can (having children as a means of increasing pay only compounds the problem, it doesn't gain anything). Studies have shown that only a small percentage of people born into a poor family rise above the level at which they were raised. In fact, from what I have found, most people raised on welfare end up on welfare themselves.
Another way to reduce spending (and maybe even raise revenue) is to put our criminals to work. At one time, the US prison system actually made money after paying for itself. Now we are paying around $30,000 per inmate to house them. They are criminals, they had their day in court and were found guilty. Make them earn their keep. If we made them just tend the fields where their vegetables came from, they would save the tax payer thousands.
Another place we could save money from is by giving incentives to various agencies to become more efficient. Instead of saying that if they don't use all their funding this year they won't get it next year, tell them that funding won't decrease and that it will increase by a percentage of what was saved. The current system merely punishes underspending. Overspend and you get berated, but you get your extra funding (it wouldn't be right not to pay your people). Underspend and you get you funding cut. This is fundamentally wrong. We should reward people for doing good things with our money.
Will we see results from all of the above this year? Not even close, I would estimate that it would take a decade for the debt to finally be paid if all the above was done (and I am no expert), but it is a start. The biggest problem with all of this is that, for some inexplicable reason, once the politicians get to Washington, DC, everything they ever learned finances goes right out the window. If any house in America operated like the US government, they would be bankrupt at the least. I can't imagine a bank saying OK if someone were to try and borrow more if they already were spending more than they made and had to borrow to pay their bills. It just doesn't happen. In reality, we have to live within our means. Raise taxes, reduce spending and pay our debts now. Then we can reduce our taxes later and decide if we really need to increase spending at that time. That's just my opinion, maybe you have a better solution. No matter how you look at it, something needs done. Thank you and have a wonderful day.
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