How to balance the budget

On June 21, 2013, in Latest News, by The Somerville Times

shelton_webBy William C. Shelton

(The opinions and views expressed in the commentaries of The Somerville News belong solely to the authors of those commentaries and do not reflect the views or opinions of The Somerville News, its staff or publishers.)

We are enjoying an intermission in Congress’s vicious deficit-reduction theater. For tactical reasons, the Republicans have decided not to conduct debt-ceiling or continuing resolution dramas for a while. Democrats remain inertial, or absent from the conversation.

So it’s probably a good time to discuss ways to balance the budget that are in plain sight, but aren’t approved of by Congress’s owners. Before doing so, it’s also worth asking why the issue of deficit reduction dominates that of the widespread unemployment and falling incomes that are wrecking lives and savaging the workforce’s youngest generation.

Austere fiscal policy doesn’t work

We have ample evidence now that the austerity economics that so-called conservatives advocate result in economic slow down, greater public debt, and widespread suffering.

Britain’s Conservative Chancellor of the Exchequer, George Osborne, was forced to report that his government has failed miserably to meet the economic goals that it set in 2010 when it slashed government programs by as much as 30%. At that time, he had said that this policy would cut the budget deficit to zero within four years, reduce public debt, and generate economic growth—exactly what Congressional Republicans promise us.

Instead, the British deficit remains high and the economy has gone through a double-dip recession, the second dip precipitated by fiscal austerity measures. We have seen the same in those national economies that were forced to embrace the austerity approach.

If all the pain and suffering caused by austerity had transformed their economies as promised, there might be some justification. There is none.

Six times, our nation has gone deeply into debt. The first five times were to finance wars. Americans paid down those debts with increased taxes, but did so over decades rather than years, so as not to stifle economic growth.

Tea Partiers like to point to the 1950s as the “good old days.” But for most of the 1950s, the top marginal tax rate was 91%. The lowest was 84% in 1950, more than twice what it is today. Our current huge deficits were created by lowering tax rates while borrowing to pay for two unfunded wars and the Medicare drug benefit.

The pernicious ballooning of national debt, economic malaise, and growing inequality was not the outcome Bush’s tax cuts alone. Their causes go back to the Reagan years, when tax reductions on the wealthy accompanied disinvestment from infrastructure, research, and education. The consequences of such disinvestments are long-term, and we are living with them.

So given where we are today, how might we move toward a balanced budget?

Lowering Expenses

Stop privatizing government work. Frightened of political blowback from expanding government headcounts, and embracing an ethic of private-sector sanctity, recent federal administrations have privatized more and more government functions. The Project on Government Oversight reports that private contractors receive nearly double what a federal employee would receive for the same work.

Reform imprisonment policy. About 5 percent of the world’s people live in the U.S., but 25 percent of its prisoners are locked up here. With a population of 320 million, we incarcerate more people that does the authoritarian state of China that has a population of 1.4 billion. This misguided response to nonviolent crime costs us $68 billion per year. But it doesn’t reduce crime. In fact, it seems to have the opposite effect.

End the war on drugs. It’s mostly fools and lunatics who fail to  learn from experience. But since Nixon declared “War on Drugs,” we spend ever more, while illicit drugs’ availability increases, and violent crime proliferates. In a 2008 study, Harvard economist Jeffery Miron estimated that ending the war on drugs would save taxpayers $41.3 billion per year. On the other hand, taxing drugs would provide ample revenues that could pay for drug education and rehabilitation, which produce outcomes far superior to prohibition, prosecution, and imprisonment.

Bring sanity to the healthcare system. The U.S. spends 16% of its GDP on healthcare, far more than any other nation. Yet we enjoy worse outcomes than countries with single-payer systems that cost much less. If single-payer is against your religion, then support the “public option.” That is, allow anyone to buy Medicare coverage. Even Republican voters approved of this by a small majority. But the big-pharma bullies didn’t. At least allow Medicare to negotiate drug prices with big pharma. The other developed countries do this, and doing it would bring down prices for everyone.

Spend what we need for defense, not what the “military industrial complex” wants. Dwight Eisenhower, who coined that term, also admonished that, “Separate ground, sea, and air warfare is gone forever.” But in the 66 years since, the various Services have protected their fiefdoms and the gross overhead costs that they impose. The current fiscal crisis offers a rare opportunity to align defense spending with modern military technology and command structures, producing greater capability.  Meanwhile, we’re still buying cold-war hardware that we don’t need and can’t use. Nor do we need boondoggles like the F-35 jet, which the New York times says, “would cost taxpayers $396 billion….That would be… two-thirds of the $589 billion the United States has spent on the war in Afghanistan.”

Raising Revenues

The inequitable tax system of the last 30 years is one of several essential reasons for the hollowing out of the middle class. So a no-brainer should be a tax scheme in which billionaire hedge-fund managers do not pay a lower rate than their secretaries pay. In addition…

Close down offshore tax havens. The Treasury Department estimates that we lose about $100 billion per year to tax haven abuses.

Impose an excess profits tax on defense contractors during times of war. Since 2002, the five largest defense industry players’ profits have increased by 450%. In World Wars 1 and II and the Korean War, the U.S. imposed what Franklin Roosevelt termed a “steeply graduated excess-profits tax.” He said at the time that a few should not gain from the sacrifices of many.

Impose a financial speculation tax. Risky Wall-Street gambles produced the financial meltdown that ushered in the ongoing economic malaise. Tax every financial trade at one-quarter of one percent. Even a small tax would incrementally reduce the incentive for risky trades, while generating revenue.

Replace the payroll tax with a carbon tax. The “marginal propensity to consume” means that the lower a family’s income, the more of that income will flow back into the economy as purchases of goods and services. Accordingly, in today’s economy, a regressive tax on wages is probably the least sensical of our many taxes. On the other hand, a carbon tax would be equitable, immediately produce $100 billion per year, finance the Trust Fund, and make a huge contribution to averting climate change and its economic and environmental tolls.


Unless one is incapable of distinguishing fact from ideology, the potential efficacy of all of the foregoing is well supported by evidence.  But as Benjamin Disraeli observed over a century ago, “Courage is the rarest of all qualities to be found in public life.”

Especially when it’s up for sale.


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