Blogs » Politcs Plus » Truth ,Growth and Compromise


We will not solve our financial problems by drawing an ideological line in the sand. President Obama will probably have to break his promise not to raise taxes on the middle class, even though it would be political suicide, his opponents will hit them over the head with this issue, like the Democrats did, when George H. W. Bush said "Read my lips, no new taxes." On the other side, tax revenues are at a low point but the Republicans keep screaming for more tax cuts as if it is the silver bullet. Truth is, Wall Street almost drove us into a depression with their recklessness and greed but they got bailed out, leaving the rest of the country to pay for their mistakes. Instead of joining the Democrats in trying to reform Wall Street, House Minority Leader John Boehner, sought out the contributions of Wall Street by emphasizing that it is not Republicans that are trying to reform them.

Today's budget deficit is about $1.6 trillion which is about 10.6% of the gross domestic product. (GDP). It's important to note that our federal tax system takes in roughly 17% of GDP before subtracting, military spending(5% of GDP), health spending(5% of GDP) and interest on the debt(2% of GDP) leaving us about 5% of GDP to pay for unemployment compensation, social programs, education and anything else that needs our immediate attention. The politicians (with the help of the media) like to concentrate on pork but even if we eliminated every dollar of pork, it would only save is about $11 billion or 1% of GDP. Once you know the numbers and you continue to repeat the thoughts and talking points of the past, then you really don't want a solution, you just want something to argue about. The legislators know this ;that is why Congressman Paul Ryan (R-WI) has privatizing Social Security and Medicare, in his Republican budget proposal. Democrats and Republicans know that reforming Social Security and Medicare will not get the job done because we are an aging population that will continue to have medical problems, driving up the cost. Douglas Elmendorf, the director of the Congressional Budget Office, said he can crunch all the numbers but he does not have a crystal ball. He realizes the people are reluctant to send the money to Washington to pay for all their wants like wars and social programs.

We are in such dire straits that only truth, growth, and compromise will lead to a workable solution. I think the Democrats would have to accept a modest tax on the middle class, give up trying to level all the new taxes on the rich, and consider cutting corporate rates after some stipulations are met, such as keeping jobs in America and revising benefit packages. The Republicans will have to accept higher taxes as a share of GDP but in return marginal rates could be cut to pay for education, welfare, infrastructure and deficit cutting. We can scrap the Cap-and- Trade and go with a carbon tax but ignoring climate change policies is not the answer because our competitors are not. One of my favorite economists, Jeffrey Sachs, wrote a column in this week's Time magazine suggesting these new ideas but he also said we might consider adding a value added tax (VAT) and closing some loopholes. I would suggest auditing more income tax returns but the opposition would only complain because we would have to hire more bureaucrats.

Jeffrey Sachs calls uttering the “T” (TAX) word first, is called political chicken, because that's the last word that politician will say as a member of Congress, his opponent will have an easy road to victory. The next hardest thing is weaning off lobbyist money. The recent Supreme Court rulings will make that next to impossible. It will be interesting to see how President Obama's televised meeting with the Republicans turns out in a couple of weeks. I imagine the Republicans don't want a repeat of their last meeting, whereby all standards, the president made 140 Republicans look pretty bad.

To some, those suggestions will seem radical but we cannot continue to repeat the mistakes of the past and expect different results. I know we don't have a truth certain, guaranteed to work, economic theory, or we would be using it.