Maas Media - Travel & Political Musings

How do we get out of this federal financial mess?

For the third year in a row the U.S. government is about to run another trillion dollar plus budget deficit!  Yes, you’re reading it correctly.  The federal government has succeeded in running up almost $4 trillion in national debt in just over 3 years.  Our current national debt stands at $14.3 trillion.


To put this in comparison; the average American household earns over $49,777 per year.  The average household would’ve had to have a credit card debt of $220,000 to match the ratio of debt the U.S. government is carrying compared to its annual earnings.  If this were reality, needless to say, this household example would’ve filed for bankruptcy protection a long time ago!

Since the U.S. government can’t file for bankruptcy as they ‘own’ the bank that prints its own money many people argue that this debt is not that big of a deal.  Under a strong healthy economy that would grow at 5% annual GDP with a 4% unemployment rate I would almost agree with those people, because if you keep that growth up and spending under control at some point your debt to earnings ratio would drop dramatically in which case managing the debt isn’t so bad.

Reality being reality, we’re far away from that!  Trillion dollar budget deficits put a strain on any economy.  It hurts long term growth and it puts the U.S. dollar in a bad position, which makes us uncompetitive in a global market.  On top of that we spend close to 20% of government revenues on national debt payments and that’s money wasted down the drain, which could be spend on badly needed infrastructure projects.

So what are the solutions?

1. Reform the Tax Code

  • Lower corporate taxes from 35% to 18%
  • Maintain individual tax rates for people earning over $100,000, but lower tax rates by at least 5 points for everyone else
  • Remove 95% of all tax deductions and subsidies.  This includes mortgage deductions, child deductions, medical deductions, but also ethanol, oil, gas and sugar subsidies for companies
  • Social security and medical taxes to be taxed on 100% of earnings (no longer capped at $120,000)
  • Institute a 7% VAT

2. Overhaul Healthcare (including Medicare and Medicaid)

  • Require all medical institutions (hospitals, clinics, physicians, medical supplies, etc.) to be hooked up to the same federal computer system
  • Doctors/nurses are required to fill out patient information on tablets, not charts/paperwork, which are hooked up to the federal computer network
  • Sell insurance across state lines
  • Tort reform to protect physicians and lower insurance rates
  • Penalize unhealthy people (smokers, obese people, etc.) by taxing them, but provide them with a one year waiver to allow them to become healthy
  • Everyone is required to carry insurance.  You’re allowed to decline, but you’re penalized with 7 basis points on your individual income taxes.  An insurance pool is created, which is regulated by the government, but run by private insurance companies to provide insurance to the poor, self employed, etc.  Insurance rates cannot surpass 5% of gross earnings for people making less than $20,000/yr.

3. Defense Budget

  • Close unnecessary military basis around the world
  • Immediately nullify all contracts for unnecessary weapons systems not requested by the Pentagon, but forced on the Pentagon by congress
  • Reduce total troop levels by 20% over 6 years without firing anyone
  • Modernize the military.  For example:

    Predator Drone

    • Replace 100 F-16s with 1,000 predators and you will still save money on equipment, training, maintenance, etc.
    • Expand special forces, but reduce size of regular army troops
    • Expand on space systems, but reduce cold war relic weapon systems such as tanks, aircraft carriers, etc.

4. Social Security

  • Increase the retirement age by 3 years for all three categories for people 49 years or younger
  • People with a net worth of $5 million or more are not eligible for social security (adjusted for inflation every year)
  • Social security taxes to be taxed on all incomes, no caps on high incomes
  • Increase social security payments by 10 basis points (one time), then increase it based on cost of living increases every year

5. Education

  • End tenure for all teachers in public schools (new federal law)
  • Fire immediately all teachers ranked in the bottom 10% of performance
  • Salary for teachers based on performance.  Salary plus bonus will be the new form of earnings for teachers.  Teachers can earn as much as $130,000/yr in public schools based on rankings and can earn tenure if they maintain a ranking of 80% or better
  • Institute new teaching techniques that work

6. Infrastructure

  • Double spending of infrastructure by increasing the transportation budget from $72 billion to $144 billion
  • Increase spending based on mathematical formula for budget surpluses

The action items mentioned above will result in the following:

  1. It cuts spending by $470 billion
  2. It increases tax revenues by $680 billion
  3. A net result of $1.15 trillion for the federal budget
  4. Stimulation of the economy as efficiencies will create new businesses by shifting resources and an influx of new infrastructure spending will put blue collar workers back to work

In order for this materialize we need two very important things to happen in U.S. politics.  First of all, we need a balanced budget amendment.  Congress unfortunately cannot be trusted to balance its own books, therefore a new amendment is required to ensure that politicians will no longer look out for their own interests but rather put the interests of the United States of America first.

Secondly, we need a third political party in congress.  It would almost guarantee that no political party will have a majority in congress (house and senate) and therefore compromising will become a necessity within the restrictions set forth by the balanced budget amendment.  One can no longer create a spending bill without having a way to pay for it (cut spending or increase revenues will be the only way, and for that you’ll need to compromise).

Reform Party anyone…?




Comments (1)

Roger GeyerSeptember 4th, 2011 at 8:12 pm

I generally like and agree with your ideas here (and in some of your infrastructure political pieces), EXCEPT for the VAT.

I like the fact that they seem ideas that come from both the left and the right, so you’re not just some GOP or Democratic pundit.

My main issue is that if you leave income tax rates alone for those making over $100,000 AND add a 7% VAT (which would likely increase a lot over time, Washington being Washington) — it would depress the economy, not stimulate it as you assert.

Look at Europe. Much of Western Europe has a giant VAT to pay for giant social programs, and its pitiful growth rate is killing its economy (and the ability to maintain the social programs) over time.

I think if we went generally with your ideas (naturally there would need to be debate/compromise at the margins) — and made the VAT TEMPORARY — just to get the magnitude of our debt under control — that might be doable, IMO.

Sadly, all the special interests who just LOVE all their tax breaks would be toally against eliminating the massive tax breaks — so I don’t see a snowball’s chance of this happening, unfortunately.

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