Today's letter to the Fiscal Commission
Commissioners,
I write today to comment on the presentations by Dr. Paul Posner of George Mason University and Janet St. Laurent and Patricia Dalton of the Government Accountability Office. Both of these presentations were quite well done, however they did not provide much new knowledge. While both methodologies are useful in administrative budget formulation, they do not get at the heart of the problem - which is the political incentives which keep the budget out of balance and the process out of control.
Posner's presentation on performance based budgeting will lead to better government, but not necessarily to cost savings. The reinventing government efforts championed by Vice President Gore came a bit closer on that front by suggesting that agencies who cut administrative costs be given a larger overall budget - giving them a bottom line to shoot for. This is similar to an idea I submitted to the Gore task force in 1993. Whether there is any connection to my suggestion and the final recommendation is unclear, since such efforts rarely cite the sources for the ideas they implement. Irregardless, the impact of this reform was not what balanced the budget during Mr. Clinton's presidency. Spending caps, increases and the willingness to enforce them had a much bigger impact.
The problem we as a nation face is one of incentives. Until tax increases to fund overspending on discretionary and entitlement costs become automatic, there will be no incentive to enact discretionary budget cuts, earmark reform or entitlement limits (assuming the latter is even a good idea to start with). Enacting spending bills on time is a separate issue - and this won't occur until a Joint Budget Resolution is enacted before detailed budget estimates are even submitted by the executive - with automatic enactment of either the estimates or adjustments to current law should appropriations committees fail to complete their work.
Regional appropriations and entitlements, with regional Value Added Taxes to fund the former and an expanded business income tax (all businesses - including sole proprieters, all value added) to fund the latter, with a balance requirement for each region, will get domestic spending under control - although to be really effective a constitutional amendment would be required allowing both automatic tax increases and regionally based excise taxes - as well as regional legislative bodies and executives to implement these things. The national government would impose a second VAT for truly national agencies - like NIH, continue to fund and administer retirement and old age survivors insurance and the associated payroll tax, finance net interest and debt retirement, strategic nuclear forces, naval sea deployments and overseas military and marine deployments - all funded by a surtax on higher incomes and deficit spending in times of national military emergency.
Altering taxing and spending as I have suggested makes it more noticeable to taxpayers, especially high income earners, who would be clear on who would have to pay back shortfalls. While most students of federal finance are well aware that this obligation will be met mostly by the children of higher income taxpayers - most such taxpayers do not have this level of awareness. Were they so aware, there would be no question of how to ultimately meet our budgetary shortfall or of how aggressively to do so. To be clear, general tax increases will decrease economic activity and become self defeating, while taxes on the wealthy will not. Indeed, such taxes may be a salutory way to prevent concentrated asset accumulation and price inflation in the financial sector. While I agree that there is a delicate balance where too high a tax rate might lead to a decrease in revenue, we are currently no where near that point. By ignoring necessary tax increases we put the general economy at risk while putting the assets of upper income families at even greater risk. The kind of disruption a financial collapse would cause for the poor is unconscionable - however in terms of dollar value risk, the entire stock of financial wealth is at even greater risk of loss should nothing be done. The reforms I have suggested will defuse the current crisis and will lead in time to incentives to keep the budget in balance, reduce excess defense expenditure and deployments without allied cost sharing (what used to be called tribute) and ultimately the repayment of the national debt and the temporary sunsetting of the surtax.
Thank you for your attention to this option. As always, I am available to answer any questions you might have.
I write today to comment on the presentations by Dr. Paul Posner of George Mason University and Janet St. Laurent and Patricia Dalton of the Government Accountability Office. Both of these presentations were quite well done, however they did not provide much new knowledge. While both methodologies are useful in administrative budget formulation, they do not get at the heart of the problem - which is the political incentives which keep the budget out of balance and the process out of control.
Posner's presentation on performance based budgeting will lead to better government, but not necessarily to cost savings. The reinventing government efforts championed by Vice President Gore came a bit closer on that front by suggesting that agencies who cut administrative costs be given a larger overall budget - giving them a bottom line to shoot for. This is similar to an idea I submitted to the Gore task force in 1993. Whether there is any connection to my suggestion and the final recommendation is unclear, since such efforts rarely cite the sources for the ideas they implement. Irregardless, the impact of this reform was not what balanced the budget during Mr. Clinton's presidency. Spending caps, increases and the willingness to enforce them had a much bigger impact.
The problem we as a nation face is one of incentives. Until tax increases to fund overspending on discretionary and entitlement costs become automatic, there will be no incentive to enact discretionary budget cuts, earmark reform or entitlement limits (assuming the latter is even a good idea to start with). Enacting spending bills on time is a separate issue - and this won't occur until a Joint Budget Resolution is enacted before detailed budget estimates are even submitted by the executive - with automatic enactment of either the estimates or adjustments to current law should appropriations committees fail to complete their work.
Regional appropriations and entitlements, with regional Value Added Taxes to fund the former and an expanded business income tax (all businesses - including sole proprieters, all value added) to fund the latter, with a balance requirement for each region, will get domestic spending under control - although to be really effective a constitutional amendment would be required allowing both automatic tax increases and regionally based excise taxes - as well as regional legislative bodies and executives to implement these things. The national government would impose a second VAT for truly national agencies - like NIH, continue to fund and administer retirement and old age survivors insurance and the associated payroll tax, finance net interest and debt retirement, strategic nuclear forces, naval sea deployments and overseas military and marine deployments - all funded by a surtax on higher incomes and deficit spending in times of national military emergency.
Altering taxing and spending as I have suggested makes it more noticeable to taxpayers, especially high income earners, who would be clear on who would have to pay back shortfalls. While most students of federal finance are well aware that this obligation will be met mostly by the children of higher income taxpayers - most such taxpayers do not have this level of awareness. Were they so aware, there would be no question of how to ultimately meet our budgetary shortfall or of how aggressively to do so. To be clear, general tax increases will decrease economic activity and become self defeating, while taxes on the wealthy will not. Indeed, such taxes may be a salutory way to prevent concentrated asset accumulation and price inflation in the financial sector. While I agree that there is a delicate balance where too high a tax rate might lead to a decrease in revenue, we are currently no where near that point. By ignoring necessary tax increases we put the general economy at risk while putting the assets of upper income families at even greater risk. The kind of disruption a financial collapse would cause for the poor is unconscionable - however in terms of dollar value risk, the entire stock of financial wealth is at even greater risk of loss should nothing be done. The reforms I have suggested will defuse the current crisis and will lead in time to incentives to keep the budget in balance, reduce excess defense expenditure and deployments without allied cost sharing (what used to be called tribute) and ultimately the repayment of the national debt and the temporary sunsetting of the surtax.
Thank you for your attention to this option. As always, I am available to answer any questions you might have.
posted by Michael Bindner at 12:38 PM
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