No Such Thing As An Opinion!

July 15, 2011

Does the American public have any good ideas for reducing the deficit? PART ONE

Does the American public have any good ideas for reducing the national debt?  We will soon find out.

Let me first provide you with some context for my article:

Most readers are likely aware of the daily, intense negotiations taking place regarding the debt ceiling and deficit.

To summarize, the US government spends more money than it earns, and this deficit has occurred for most of the past several decades!

The only reason the US has been able to spend more than it earns is by borrowing money to fill the gap.  As a result, the national debt has risen to over fourteen trillion dollars!

Congress has set a legal ceiling that limits how much debt the government can accumulate.  Over the years, Congress has periodically risen the ceiling, in order to prevent the government from missing interest payments and defaulting on its debt (among other reasons).

It is anticipated that the debt will reach the current legal limit on August 2, 2011.

This time around, for some reason, there appear to be many members of Congress who are unwilling to raise the debt ceiling without preconditions.  It's unclear as to why this sense of urgency was missing prior to previous debt ceiling votes; after all, the financial situation of the US has been dire for many years now!

The preconditions being insisted upon by politicians are aimed at improving the US's financial situation by reducing the annual deficit.

Deficit reduction can be achieved in two ways:  By increasing revenue through taxation, or by reducing government spending.  It's as simple as that!  (For more on the topic, see the recent articles I've written about the debt negotiations: This one about taxation, and this one about effects of a default).

By reading those articles, readers will find out what I, the 74th smartest person in the world, think about the ideas being presented by politicians.

But what are the public's ideas about how to reduce the debt?  And how does the 74th smartest person in the world judge the public's ideas?  Let's find out!

Today, MSNBC published an article that outlined the results of a February 2011 poll of the American public.

The poll listed "26 different ways to reduce the deficit or to cut spending."

Although the article doesn't say exactly how the poll question was worded, it lists the fiscal strategies in order "from most acceptable to least acceptable," according to the views of the public.

Here's the list:

"-Placing a surtax on federal income taxes for people earning over $1 million a year: 81% acceptable

-Eliminating spending on so-called earmarks for special projects and specific areas of the country: 78%

-Eliminating funding for weapons systems the Defense Department says are not necessary: 76% acceptable

-Eliminating tax credits for the oil and gas industries: 74% acceptable

-Phasing out the Bush tax cuts for families earning $250,000 or more per year: 68% acceptable

-Freezing annual domestic spending at its current level for the next five years: 67% acceptable

-Reducing Medicare and Social Security benefits for wealthier retirees: 62% acceptable

-Gradually raising the Social Security retirement age to 69 by 2075: 56% acceptable

-Cutting funding for the new health-care law so that parts of it will not be put into effect or enforced: 51%

-Reducing agriculture subsidies or support to farmers and ranchers: 45% acceptable

-Eliminating funding to Planned Parenthood for family planning and preventive health services: 45%

-Gradually turning Medicare from a system in which the government pays for most beneficiaries' medical bills into a program in which seniors would receive government-assisted vouchers to purchase private insurance: 44% acceptable

Among the budget cuts:

Subsidies to build new nuclear power plants: 57% acceptable
Federal assistance to state governments: 52% acceptable
The Environmental Protection Agency: 51%
Transportation and infrastructure projects: 51%
Scientific and medical research: 48%
National defense: 46%
Unemployment insurance: 43%
Head Start: 41%
College student loans: 39%
Heating assistance to low-income families: 34%
Medicaid: 32%
Medicare: 23%
K-12 education: 22%
Social Security: 22%"

What I'm going to do is review these public opinions.  I want to see if the public has any reasonable solutions or not!

This article will review the suggestions which a majority of Americans support.  Part Two will review the rest of the suggestions.

Please note that the poll's suggestions, when implemented, are extremely complex.  Many strategies have countless ramifications.  It's way beyond the scope of this article to examine all of the ramifications!  However, I will comment on the ramifications I feel would have the greatest impact!

Let's take a look:

1)  "Placing a surtax on federal income taxes for people earning over $1 million a year: 81% acceptable"

So, the most popular strategy is to raise taxes on very wealthy people.  Bravo, Americans!  In the current context, this is likely to be a good strategy.  In fact, I outline the merits of raising taxes (in the current context only!) here.

I'd lower the taxation threshold below $1 million in annual salary.  Percentage wise, there certainly aren't many who earn over $1 million annually, and there are far more who earn, say, between $200,000 and $500,000 annually!

It's important to note, however, that raising taxes on the wealthy does little, if anything, to increase the wealth of the USA overall!

Taxation simply shifts money from the wealthy to pay down the debt.  That's it!

But given that Americans have, for decades, been using borrowed money to buy things, someone has to pay for what they've already bought!  And the wealthy are the only ones with enough money to pay for the bulk of it!

As a nation, the US currently buys more than it sells (the trade deficit).  The gap is so large, for instance, that when the CIA compiled a measure which included the trade deficit, the USA placed last out of all 191 countries on the list!

The only way the USA can make itself wealthier is to start selling more than it buys!  That's the only way!

And that option isn't even on the poll's list!  That's dreadful!

It's a shame, because there are strategies that could instantly make the US wealthier overnight!  One is simple: Place a tax on goods purchased from China and other low wage countries.  That will dramatically slow the flood of money leaving the US, and it will encourage Americans to buy from other Americans instead!

The process will be slow, however.  As demand for American goods increases, the shrunken American manufacturing capacity will need to be expanded over time.

So, absent the real growth strategy of selling more than it buys, the US must decide which alternative strategies are best, at least in the short term.  Let's continue on with the list.

2)  "Eliminating spending on so-called earmarks for special projects and specific areas of the country: 78%"

I'm glad to see that 78% of Americans agree:  Earmarks for special projects should be reduced!

Again, although this strategy is unlikely to cause the US to actually grow, there are some benefits of the strategy:

a)  It could reduce corruption.  I would think that earmarks are often placed there by politicians who primarily want to reward supporters, in the form of grants, business contracts, etc.  Reducing corruption is a good thing!

b)  By reducing spending, it reduces the budget overall.  Everything else being equal, a smaller budget is always better than a larger budget, because the more money the government handles, the more money will be mishandled!

3)  "Eliminating funding for weapons systems the Defense Department says are not necessary: 76% acceptable"

Good!  This suggestion could actually cause the US to reduce its wealth shrinkage!  Here's why:  If these weapons systems happen to use oil, and if use of these weapons are reduced or eliminated, then it would also reduce the amount of oil used!  And that helps America, because America is a net importer of oil, meaning America's wealth is drained away to oil exporting countries!

Now, this suggestion should only be implemented if the benefits outweigh the costs!  If the weapons system is unique enough to provide extraordinary defense capabilities, then one should certainly consider keeping that weapons system!

4)  "Eliminating tax credits for the oil and gas industries: 74% acceptable"

When it comes to sacrificing for the overall good of the country, those with the money are among the last ones that should be complaining about sacrifice.  And the oil companies do have the money.

In fact, they have so much money that Fortune 500, 2011, says two of the three most profitable companies in the USA are oil companies!  That's quite a statement.

And it's not just the fact that wealthy oil companies are the ones that can afford to sacrifice in order to fix America's fiscal situation.  It's the fact that oil companies have, for several years, likely unfairly profited from criminally high oil prices!

5)  "Phasing out the Bush tax cuts for families earning $250,000 or more per year: 68% acceptable"

Good.  See my response to item 1.

I find it interesting that there is only a thirteen percentage point spread between the number of Americans who approve of raising taxes for families with a $250,000 annual income versus individuals with a $1,000,000 annual income!  That's a big difference, given that families earning $250,000 would mean its individuals earn much less than $250,000!

But, as I said in response to point 1, there is a very wide range of lucrative salaries that one could justify taxing!

6)  "Freezing annual domestic spending at its current level for the next five years: 67% acceptable"

Wow.  67% advocated this?  I highly doubt this is doable.

I mean, it may be doable, but the effect might cause such a drastic change that it would cause a shock to the economy, as many government workers' incomes would likely instantly be eliminated!

It might be better to start by reducing the pace of the government's growth over the next few years, with the aim of actually beginning to reduce government spending in a few years' time.

But really, I would need to see the entire budget in order to provide an answer with confidence.

7)  "Reducing Medicare and Social Security benefits for wealthier retirees: 62% acceptable"

Very reasonable.  Again, it's the wealthy who would be hurt the least by paying more taxes!

8)  Cutting "subsidies to build new nuclear power plants: 57% acceptable"

As long as the nuclear power plants are cheaper than other methods of energy creation (and I assume they are), then I disagree with the public: I wouldn't cut subsidies.  In fact, I might do the reverse and increase subsidies!

But I would recommend this only if nuclear plants are so much cheaper than other methods that the benefit outweighs the following potential costs:

a) A nuclear meltdown!

b) The fact that, although this option might be cheaper in the long run, it could provide fiscal strain in the short term, strain that the US might not be able to afford.

9)  "Gradually raising the Social Security retirement age to 69 by 2075: 56% acceptable"

I'm disappointed to see that only 56% of Americans approve of this! C'mon people!

After all,  I don't think it should be only the wealthy that sacrifice!

I do think that some lower and middle income persons should sacrifice solely due to the following:

Many of the economic benefits that US society has already received (resulting decades' worth of debt fueled spending)  have flowed to lower and middle class persons, in the form of welfare and other benefits!

In this case, although the people who actually received some of the benefits (the lower and middle classes) have less of an ability to pay for it, they did receive the benefits, and should aim to pay for some of it!

Cushioning the blow is the fact that the payback would be very gradual, ending in 2075.  This is certainly consistent with the gradual nature of the debt accumulation itself, having spanned several decades!

10)  Cutting "federal assistance to state governments: 52% acceptable"

Let's be honest.  Both the federal government and the state governments are broke.  Therefore, what it comes down to is this:

a)  Are the total (federal plus state) government funds well allocated between the federal and state levels?

b)  If not, then they need to be allocated better!  It's as simple as that.  Just redistribute them!

11)  "Cutting funding for the new health-care law so that parts of it will not be put into effect or enforced: 51% acceptable"

I don't know how the health care law will change the overall budget of the USA.

But if you assume that the law doesn't increase the overall budget, I'd have to agree with the public and recommend scrapping or reducing funding for health care.

Why? Well, think about it.  The new law requires people to purchase health coverage.  There will be more health care patients.  But there is no way that the supply of doctors will increase as quickly as the demand from new patients will!

More patients clamoring for the services of the same number of doctors likely means only means this:  Rationing of services, and a less healthy population overall.

Knowing that, why wouldn't you cut health care funding, or at least the requirement forcing people to purchase health care!

12)  Cutting funding for "The Environmental Protection Agency: 51%" 

I simply don't know enough about the EPA's agenda to provide a fully informed answer.  

I'd say it's probably worth it to cut funding for wildlife protection efforts short of eliminating the protection of species from becoming extinct.  As long as species don't become extinct, then once national finances improve, the country can resume it's wildlife breeding and other efforts again. 

13)  Cutting funding for "Transportation and infrastructure projects: 51%" 

In order to provide a fully informed opinion, I would need to know more about their budget!

Transportation and infrastructure can be quite varied!

When it comes to decisions as to whether to repave damaged roads, I would say this: 

Simply compare the cost of the construction with the extra cost of repairing vehicles.  Vehicles will require more repairs due to having ridden on poorer quality roads!  Compare versus the cost of the extra fuel that will be used when driving in slower traffic. Potholes and other aspects of poor quality roads will cause more traffic!

And, crucially, don't forget to distinguish between costs that are paid within the country (like construction) versus costs that are paid outside the country (such as oil)!

It's all about costs versus benefits, people!

We need to start teaching this type of thinking in schools!  Isn't that what a real education should be about?

Keep an eye out for Part Two, where I examine the debt reduction strategies that Americans find unpopular!

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