Balancing the budget requires a balancing act

Posted by Shyam Moondra

Now that the battle has been joined between Republicans and Democrats on how to reduce the budget deficit and national debt, here is my list of what we can do:

· President George W. Bush is responsible for most of the budget deficit and ballooning national debt, so why don't we undo what he did. Stop the wars in Afghanistan and Iraq, let the Bush income tax cuts expire next year, especially for those who are making $250,000 or more a year, repeal corporate tax subsidies (e.g., to oil companies), and close the corporate tax loopholes that enable the corporations to pay very little income tax (e.g., recently, GE paid zero taxes and Google paid only 2% in taxes).

· Following the lead of the private sector and some of the state governments (e.g., New Jersey), the federal government should also cut salaries and benefits of the members of Congress. They should pay higher insurance premiums, deductibles, and co-pay for their government provided gold-plated health care plan. Their overly generous pension benefits should also be slashed.

· The Pentagon is a wasteland of tax-dollars. We spend in excess of 4.7% of our GDP on defense (up from 3.1% in 2001). The more military power we have, the more eager we seem to become to use it. Republicans are haggling over a few billions of dollars for children's programs at home while they have no qualm against spending billions of dollars in Libya, even though Libya is not a security threat to the United States.

Having enormous military assets means we are the de facto world police. The history has clearly demonstrated that our military involvement in Korea, Vietnam, Iraq, Afghanistan, and now Libya may have cost us trillions of dollars but it has not really made us more secured. Knowing that we have the most powerful military in the world has led us to erroneously believe that we have the right to intervene militarily anywhere and everywhere at whim. In many cases, even though other countries can deal with the crises, they just find it convenient and less costly to let the well-armed (and always eager to oblige) Yankees do it. There is so much money lying around at the Pentagon that they don't care if they paid $500 for toilet seats or $100 for hammers. During the Iraq war, billions of dollars of cash simply vanished in thin air (even today, it's unaccounted for) or paid to the contractors without any proper paperwork (so nobody can tell what services were provided by those contractors). I think we need a debate in this country on what should be the mission of our ever-growing military? Is it to defend our borders or to have a global presence so that we can intervene in any conflict anywhere in the world (even if our security is not threatened)? Once we know the answer to that question, then we will know what is the right budget for the Pentagon. Regardless, President Obama's suggestion to reduce the Pentagon budget by over $100 billion is nowhere near what it could be.

· Social Security: Increase the income limit for Social Security tax from $106,800 to $150,000, but keep the full retirement age at 66, as it is now.

· Medicare: Increase the income limit for Medicare tax from $106,800 to $150,000, increase the Medicare tax rate from the current 1.45% to at least 3%, increase the annual out-of-pocket deductibles, impose limits on annual and life-time benefits, strengthen the provisions that would give Medicare a free hand to negotiate lower rates for hospital stays, drugs, and doctor's services, and allocate more funds for investigating and prosecuting Medicare related fraud.

· Medicaid: Cut the overall budget by 30% - Cover only serious illnesses (for routine care, the patients will be on their own except for children), impose limits on annual and lifetime benefits, and allocate more funds for investigating and prosecuting Medicaid related fraud.

· Reduce the federal bureaucracy by reorganizing the federal government structure. Here are some examples: Combine Commerce and Labor Departments covering the issues related to business and labor; combine Interior, EPA, and Energy Departments into a single Department; close-down HUD, etc.

· Financial and military foreign aid programs should be reformed. We should cut back on who receives such aid and for how long (aid to Pakistan is a sheer waste of tax dollars and Israel has become a permanent recipient even though Israelis' living standard has vastly improved in recent years). A chunk of this aid ends up in secret Swiss bank accounts of the leaders of these countries. Rather than giving cash, we should give them material and provide services procured from American companies that will minimize the opportunity for the leaders of the receiving countries to embezzle the aid money; also, this approach will also help American businesses and possibly help create more jobs for Americans.

· The budget should be thoroughly reviewed and all programs that are deemed ineffective should be eliminated altogether. When Congress approves a new program, the legislation should also require periodic mandatory evaluations and specify under what conditions the newly enacted programs could be phased out.

Ryan's proposed budget: A plan for "prosperity" or "hell"?

Posted by Shyam Moondra

President Ronald Reagan pursued trickle-down economics by cutting taxes for the rich in the belief that prosperity of the people at the top would trickle down to the people at the bottom of social strata. It didn't and President Reagan left a huge budget deficit and rapidly increasing national debt. President Bill Clinton raised taxes for the rich, in spite of fierce opposition from Republicans who predicted that higher taxes would lead to economic recession. It didn't lead to recession. Instead, we had one of the most enduring periods of economic vitality full of innovations made possible by venture capital that created over two million high-paying jobs and the stock markets reached to all-time highs. President George Bush increased spending to finance two wars that he initiated, got the Congress approve large tax cuts, especially for the rich, and spent a huge amount of tax dollars to bail-out the financial institutions. Bush's actions led to record high budget deficit and national debt that he handed over to President Barack Obama. Last week, the Chairman of House Budget Committee, Rep. Paul Ryan (R-Wisconsin), managed to have the U.S. House of Representatives, controlled by Republicans, approve his 2012 budget plan that slashes spending, largely targeted at senior citizens, children, and poor people, while cut taxes for the rich individuals and corporations. Will the third time be a charm for trickle-down economics? No way, no how!

Here are some observations on the Ryan's plan:

· About 90% of the people, especially low-income and middle-income people, will be hit the hardest while 10% of the richest people would come out ahead. The Ryan plan would create the worst class-warfare we have ever witnessed in the U.S. history.

· The middle class is the fuel that feeds our economic engine. The Ryan plan, which is lopsidedly anti-middle class, would scuttle the economic recovery currently underway and lead to higher unemployment right around the 2012 election time. May be that's what Republicans have in mind because the voters tend to punish the party in power in the White House for any economic ills.

· The biggest spending cut would come from privatization of Medicare. This will cause an unprecedented cost shift from the government to the senior citizens who can least afford. The proposed changes in Medicare would lead to millions of senior citizens joining the ranks of uninsured, while the insurance companies would reap windfall profits. The negative economic consequences would go beyond senior citizens and would be borne by their children who would have to deal with the cost shift to senior citizens. The extreme economic severity of the proposed Medicare changes would undoubtedly lead to an increased number of suicides among the depressed millions of sick senior citizens.

· The Ryan plan is proposing drastic cuts in Medicaid, education, childcare, food-stamp program, EPA funding, and in Obama's initiatives such as infrastructure, energy, and high-speed train system. No one has even bothered to figure out what would be the social consequences of these unprecedented cuts. The college bound U.S. students are already among the bottom of the top twenty-five countries and cuts in student financial aid will only accelerate this decline that will have negative impact on our competitiveness in global trade.

· The Ryan plan wants to lower corporate taxes. Recent reports indicate that GE paid zero income tax, Google paid only 2% in taxes, and Goldman Sachs paid only 10% in taxes. Today, in a multi-national environment, most U.S. companies have empty offices (in some cases just mailboxes) in tax havens and they move money around the globe to hide their profits from the U.S. regulators. The top corporate tax rate my be 39%, but most companies pay far less than that, so what do we really accomplish by giving more tax breaks to the companies that do not pay their fair share of taxes to begin with. The focus should be more on closing the tax loopholes and making sure that the multi-national companies pay their fair share of taxes.

· The Ryan plan is not a well thought out plan. It is so imbalanced and unfair to the vast majority of the people that it would lead us all to "hell" and not to "prosperity" as Republicans have been advertising.

President Obama has proposed his own budget plan which includes tax increases for the rich, reforms of Medicare and Medicaid programs, and investments in education, infrastructure, alternative source of energy, and high-speed train system. This plan also cuts defense spending by $100 billion over and above what Defense Secretary Gates has already put in motion. Given that the Pentagon is a wasteland of tax-dollars (more dollars don't necessarily buy more security), it is appropriate to expect the Defense Department to also bear the brunt of spending cuts like everybody else. The Obama plan incorporates both tax increases (25%) and spending cuts (75%) that seem to be more balanced and prudent. The tax increases could be higher, but President Obama is mindful of not overdoing it because that might put economic recovery at risk.

Between the two plans, President Obama's plan is more realistic and a clear winner compared to the plan proposed by the Republicans. When the debate begins over these two competing plans and the Congressmen and Senators start hearing from their constituents, it will become abundantly clear that the Obama plan is indeed politically viable and the Ryan plan is dead-on-arrival.