Monday, March 30, 2009

'Frontline' show on public debt ...

I love watching PBS' "Frontline," one of the best news programs on television. And the latest entry on the national debt is another winner: ["Ten Trillion and Counting"].
It is probably one of the more balanced programs you will see on the issue, actually tackling it and telling people the truth. While it is true that tax cuts and spending under Bush expanded the debt bomb in a huge way, it has continued and been made worse in the first couple of months of the Obama Administration. To the point that Obama's budget is showing a $19 trillion debt in just a few years! And, when you think that this debt is essentially owned by the affluent who buy treasurer notes and the Chinese, who basically make and sell us everything, we have a major, major problem.
It would seem to me that the best thing is for the federal government to stop being a debtor nation. Simply put, we need to start paying down the debt and we need to do it as fast as possible. In order to do that, the government has to get back to a surplus budget - so we can start paying off the debt. There are only a few ways of doing this: Raising taxes, cutting spending, or some combination of both.
Ideally, we don't want to raise taxes, especially on working folks who can't make ends meet now. So, let's start by cutting spending first.
We can start by cutting the Pentagon budget. At almost $700 billion, it is one of the largest line items in the budget. Clearly we don't need to spend that much money on the defense of the country. Especially when you consider that a few terrorists with box cutters can take out buildings and kill thousands. An almost trillion dollar per year intelligence and military system couldn't stop that. As well, since we are in more than 100 different conflicts across the world, we need to start pulling back. If countries in Europe or Japan don't want us to pull back, they can pay for the services. Why are we spending $100 billion for NATO to protect Europe from no known enemies? It's supposedly $50 billion just to man bases in Japan. If they want the protection, let them pay for it. The taxpayers shouldn't have to pay for it.
After World War II, the military budget was cut by 90 percent. That money went to pay down the debt after the war and expand domestic services like the G.I. Bill and construction of the Interstate highway system. After the Cold War ended, similar cuts should have been made but weren't. Instead, the Congress and President fritted it all away until the Gulf War stuff started up. Once we "win" in Iraq and Afghanistan, we really need to do the same thing.
But why wait? We need the money now. The country is broke. We're the laughing stock of the world. If we cut the Pentagon budget in half and told them that they had to protect the nation with $350 billion, again, with the thought that we would pull our troops out of foreign wars and have those countries pay for their own defense, we would save $350 billion. They could do it; they will figure it out.
Other things that need to be eliminated is corporate welfare, subsidies, and giveaways, estimated to be around $400 billion. Technically, this could also be considered a tax increase. But it needs to be done.
There are other things in the budget we could easily cut, like wasteful foreign aid, an education department that doesn't educate a single child, among other things. But, it isn't going to be enough to get rid of $10 trillion in debt.
To be honest, while spending needs to be cut, taxes also need to be raised. Ideally, we need to limit the amount of taxes we nail ordinary folks with. Taxes also need to be raised on those things that aren't currently taxed. Right now, incomes are taxed in most states. Property is taxed in all states. So, let's take income and property off the table. Retail sales are also taxed on the state level. So, take that off. The Internet is not taxed but no one seems to want to do that. It could be done on a national or even international level. But it isn't going to happen. That doesn't leave too much.
Obviously, the government should close the tax haven loopholes. That would be a bit of money, who knows how much.
Another way is to raise tariffs on imported items. Right now, the trade deficit is so huge that we really don't have any other choice. The free trade economic system is a failed theory. It doesn't work. We all know it. Free trade has forced misery on most of the working families of our country. And yet, we continue to allow the MBA class to tell us otherwise - you know, the same folks that ran Wall Street into the ground.
In 2008, the United States imported $2.5 trillion worth of goods and services [and, BTW, it was mostly goods]. A very small 10 percent tariff on all imported goods would yield $251 billion in revenue which most consumers would never even notice. Sure, some who buy the more expensive items - $100 pair of Nikes would be $110; a $50,000 Mercedes would be $55,000; etc. - but most folks would never see it.
Now, according to economists, we live in a retail economy, since the bulk of our economy is based on retail sales. One of the reasons why things are so bad is that people aren't spending money. They aren't spending money because they either don't have any money or they fear for the future. When the public doesn't spend money in a retail economy, for whatever reason, well, that economy is never going to recover.
If and when people start shopping again, things may get better. But most of that money is going to continue going to China and Mexico, the places where most of our retail stuff is made. But, if we could bring those jobs back here, and people started spending again, the economy would not only rebound, but the rebound would be felt on Main Street.
Abraham Lincoln said it best after signing the Pacific Railroad Act which started the expansion of the rail from Iowa to California. Lincoln said, paraphrasing, If we get our steel for the railroad from British Steel, we'll have the rail and they'll have our money. But if we build the railroad with American steel, we'll have the rail and the money.
"Building the transcontinental railroad is widely considered one of the greatest achievements of the 19th century," Bob Turner, Union Pacific senior vice president, corporate relations, recently said, in honor of the 140 year anniversary of its completion. And it couldn't have been done without tariffs.
In fact, the Obama Administration could learn a lot from Lincoln, beyond the platitudes. As Anton Chaitkin notes in the American Almanac, Lincoln's "ultra-protectionist tariffs ... virtually forced into existence a new American steel industry." Along with upgrading agriculture, setting up a "free higher education throughout the United States through the Land Grant College system" and "reestablishing national control over banking, with cheap credit for productive purposes," Lincoln set the tone for economic recovery. While many like to extol the virtues of Lincoln, few really dig into what the guy did to save - and expand - the nation. Imagine an economic adviser suggesting that Obama follow the path of Lincoln, taking these steps to set the nation straight. Would they even get out of the White House alive?
Another tax that should be considered is a transaction tax on Wall Street products, as Ralph Nader mentioned in his column recently. While we don't pay sales tax in New Hampshire, we do pay 8.5 percent on rooms and meals. So, when I go out and buy steak tips at the 99 and help the retail economy, I get nailed for 8.5 percent. Other states also have sales taxes on almost everything. In Massachusetts, for example, it's 5 percent on retail products. But if I buy nine shares of some stock, I pay no tax. When I sell that stock again, I pay no tax. Clearly, some sort of transaction tax is in order. Nader suggests a 1/10th of 1 percent tax on investment transactions which would yield $500 billion. Why not more? Why not 1/5th of 1 percent? If we tax Scotch tape or a bicycle at 5 percent in Massachusetts or 9 percent in Florida, why can't we tax when a trader bets against a company? Seems reasonable to me.
So, with a few small changes - a 10 percent tariff, an extremely tiny tax on Wall Street transactions, elimination of corporate welfare, and a 50 percent cut in the military budget, our government would have more than $2 trillion to fix the debt bomb with little or no harm to the ordinary folks of the country. It could be done. It should be done. It could be done tomorrow.
Over a period of years, the national debt could be paid down and then we could tackle the next big round of problems, like health care, Medicaid/Medicare, and Social Security.
Problem solved, like most things, in about 15 minutes.
I'm interested in anyone else's thoughts on these matters. Feel free to chime in.

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