Politics and Pollination

William Poole, who is the former President of the Federal Reserve Bank of St. Louis, recently wrote about why it is so hard to bridge the gap between taxes and spending. As he puts it...

Most arguments favoring federal spending seem implicitly to assume that someone else is or should foot the bill. For Democrats, "someone else" is the upper-income taxpayer. I propose the Social Security test instead.

Under his Social Security test every piece of spending should be looked at in comparison to an across the board cut in Social Security benefits.   He suggests that we apply this test to all federal spending.  You should not be able no to hide behind the thought that "someone else" is paying the bill.

You want solar, ethanol or windmill subsidies?  You want to pay for Obamacare subsidies? You ought to be willing to put your own money on the line.  If everyone in America knew that they would bear the burden of each spending decision how many would stand up and be willing to pay for the costs with their own money?

Gay marriage is a good example.  More people seem to favor allowing same sex marriage than a few years ago.  However, the federal Defense of Marriage Act (DOMA) states that marriage is between one man and one woman.  Without this law, gay couples in states like Massachusetts and New York could claim and collect Social Security and Medicare benefits.  However, these programs have never contemplated gay marriage.  It is not in the actuarial cost of these programs which are already going bankrupt.  Repealing the DOMA (as the Obama administration favors) would result in higher Social Security and Medicare costs.  How many people would be willing to reduce their own Social Security and Medicare benefits if that was the result of legalizing same sex marriages?

That is the balanced thinking that has to occur.  People have to be held accountable with their own money on spending decisions.  Not someone else's.

In reality, Poole is talking about an across the board tax increase. He is just using the Social Security test to simplify the point.  As he explains in his commentary...

I hope that Republicans repeat at every opportunity, "What is your plan?" We must understand, as the CBO makes clear, that our budget problem cannot be solved by a tax increase confined to the top brackets. For tax increases to make a material contribution to solving the budget problem, the increases will have to apply to most brackets.

I would be delighted if my proposed Social Security test provokes some clear thinking. After all, if you would rather have a tax increase on all brackets, keep in mind that the increase will fall in part on those currently receiving Social Security benefits and the rest of the tax increase will fall on future Social Security beneficiaries. Roughly speaking, broad tax increase, reduction in Social Security benefits -- same difference.

There are few people in this country who are stronger fiscal conservatives than I am.  If you have read my blog, I think you understand that.  However, we need to fix our deficit problems.  How do you fix it if you cannot bring any ideas to the table to solve the problem.? If the party line of the Democrats is that we cannot afford to cut any spending and the Republicans are just as adamant about tax increases, where do you build the bridge?  Someone has to step out and lead.  These are the finer details on how I would suggest any revenue increases be framed.

Spending cuts must be at least 4 times as large as any broad based tax increases and 6 times as large as any class warfare tax increases.

Any revenue increases must not take federal receipts as a % of GDP over a maximum limit of 18.5%-the long term historical average for revenues is actually only 18.2%.  

If revenues in any year exceed this amount, the excess must be refunded pro-rata to those who paid it or used exclusively to retire the federal debt .  It cannot be used for new spending.

I suggest that the Republicans on the Super Committee put these types of principles on the table early and challenge the Democrats to give us their plan.  I would also announce that the goal of the Republicans is to do something much bigger in deficit reduction than what is required in the legislation. Go big-at least $5 trillion in deficit reduction.  I would also clearly state the above principles in public before I went behind closed doors to work on details.  This would serve three purposes-

One, it would contribute to needed transparency in the coming process,

Two, it would show right away to the public that the Republicans are serious about building a bridge to solve problems,

Three, it would allow the Republicans to seize the initiative and allow the Republicans to keep saying to the Democrats "We have suggested a reasonable plan on revenues. Where is your plan on spending?"

To be successful in governing you have live in the world of what is possible.  The plan I outline above is what I would consider to be on the far edges of "possible" in our current environment.  The first priority is to get the Democrats to start walking out on the bridge to substantial spending cuts.  I believe these principles would also be considered "reasonable"by the vast majority of Republicans and Independents and a fair number of Democrats. It is time to get Democrats to walk the walk on spending cuts and start explaining that if there are tax increases in the mix they most likely are going to touch everyone.

Senator Russell Long used to say "Don't tax me, don't tax thee, tax the man behind the tree" making the same point that William Poole makes above.  The problem is that there are not many trees left in the forest today.  We need to plant more trees (taxpayers) and we need to plant more ideas to get our fiscal problems fixed.  Yet another idea planted here at BeeLine.  We just need more pollination in Washington to get something to bloom somewhere.