While sipping on some Chai Tea this morning and watching Morning Joe, Governor Chris Christie of New Jersey was on explaining the cuts being made to balance the budget. An ad was also shown that is being run by the teachers union in New Jersey stating that cuts being proposed by Governor Christie will hurt the children in the state. Currently New Jersey is facing a $10.7 billion deficit and teachers are outraged with the proposed cuts to education. On Morning Joe, Governor Christie mentioned that part of his plan is to ask the teachers of New Jersey to freeze their pay for a year and contribute 1.5% of their salary toward health care. Currently the teachers in New Jersey pay nothing toward their health care benefits. Earlier in the year Governor Christie successfully implemented a similar 1.5% contribution from all state workers so why are the teachers balking?
Madeline Avery of Absegami High School said, "He could fix this problem by reinstating the millionaire's tax and restore the money Trenton has promised New Jersey schools" (http://www.nbc40.net/view_story.php?id=12844). David Rosen, legislative budget and finance officer, does not believe that reinstating the "millionaire's tax" will result in wealthy residents leaving the state and points to Maryland's 2008 tax increase on millionaires as proof (http://www.nj.com/business/index.ssf/2010/04/new_jersey_analyst_says_rich_s.html). Can one make that assumption from state to state?
Many of you may be asking yourself why I am talking about budget deficits in New Jersey when I live in Minnesota. The reason for bringing this to light is that New Jersey has a Governor that is making tough decisions and is not looking for a Federal government handout. With other states, like California, teetering on the brink of Greece like trouble and looking for the Federal Government to intervene is alarming. Taxes are not the answer in every case. Residents of these states and Americans in general need to demand more accountability from our elected officials. Just as each of us understand that we cannot run our households with maxed out credit cards. When I was laid off last year, I didn't turn to the government to pay my bills or ask my neighbors to chip in extra to make my house payment. Instead, along with my wife, I sat down and looked at my savings, checking and budget to determine what changes were required.
Why do we not expect and demand the same from our government? Why do some feel the answer is just to tax the rich? States, to not fall like Greece, need their residents to buck up and demand more from their elected officials to be fiscally responsible. No longer can our States rely on the Federal Government for a bailout. That form of a bailout will impact every America as it will be States that are responsible to pay the bill. Or are we giving up on State Soverienty?
You didn't collect unemployment? I recall someone asking you that in one of these blogs and you said that initially you didn't, but after a period of time, you did because you weren't able to find a job. I'm not passing judgment, just thinking that if you did, the full story needs to be disclosed. If I'm mistaken, I apologize up front.
ReplyDeleteCorrect, initially I did not collect unemployment. I did after a while to make ends meet and I justify taking it because I paid my taxes for that. I did not game the system nor turn down any opportunity that paid less than I was getting on unemployment. In fact, the job I ultimately landed did pay less than I was making on unemployment.
ReplyDeleteWe need to demand fiscal responsibility from our government before it spirals out of control. As I stated in a previous blog entry, the CBO has already announced we are on an unsustainable path. Right now on Capitol Hill the discussion of a VAT tax is being floated around. We do not need a VAT tax, we need budget cuts and a reform of the tax system. Those changes need to start at the State level and for States to assert their 10th Amendment rights too.
Couple of things. First, you did turn to the government when you collected unemployment. Justify it how you like, that's what you did. Which is fine, that's why it's there. Almost positive it wasn't your tax dollars, rather your employer pays into the unemployment fund.
ReplyDeletePeople/states need to look to all resources and options. One of those might be the federal government. The states don't want to do that, but they certainly can't cut everything as well. From an article I read a few months ago, NJ has cut education pretty drastically already. It gets to a point where cuts are counter productive. If you continue to make cuts, you can't offer things, which impacts the quality of living and the desire for people to live in your state. Reducing tax reveune. Causing budget short falls. Lather, rinse, repeat. I don't know the balance of spending and cuts, but simply cutting everything won't help long term.
And of course the teachers will fight it. Just like any group would. They need to look out for themselves, first. Essentially, you are asking the teachers to pay a 1.5% tax.
I'm coming to the conclusion that the levels of spending we have means we will be forced to see higher taxes IN ADDITION TO lower benefits.
ReplyDeleteFor years, generations have shirked their responsibility to contribute their fair share for the benefits they demand of the government. Now that the time has come to pay the bill, people are upset and demanding cuts.
Here's the problem, where do we cut? We look at social security/medicare and the baby boomers cry foul, so that's off limits. Obviously, National defense is off limits. We look at education benefits and that creates a twofold isue; teacher unions will protest and cutting our education funding only hinders the ability of our future generations to compete. And in the end, while taxes don't get raised on a state level, local governments end up levying taxes to pay for the things that the state cut. This is exactly what happened in MN so that Pawlenty could maintain his "promise" of no new taxes. He simply passed on his responsibility to local governments. See the difficulties?
So what do we cut? See, everyone wants to cut until we put things on the table and then they're against cutting this or cutting that because it impacts them.
Personally, I'm against all new spending programs until comparable cuts are made to pay for tem or taxes are increased. However, since raising taxes is impossible in this political climate and cutting is also impossible I'm living in a pipe dream because our politicians are ALL intellectual cowards who would rather get re-elected on lies and deceptions than actually do their job even if it means they are unemployed afterward.
So perhaps the biggest problem here isn't the citizens, or our fed/state governments per se, but rather the career politicians that run them and refuse to do the tough jobs we require because they'll lose their jobs if they do.
Anon
ReplyDelete1.5% is not a tax, do you consider it a tax when your employer asks, rather tells you, that your portion of your health care premiums is greater this year than last? Gov. Christie is asking for teachers to pay a small percentage of the cost for their health care.
Kevin
Higher taxes is not the answer to solving budget problems. We have allowed our elected officials to blout the budget by demanding that our country give us entitlements. Baby boomers will all be within Medicare window in the next 5 years or so I believe the numbers are.
We need to curb spending and reform our tax code. Everything should be on the table in regards to cutting. I do not buy the fact that schools are off limits or national defense. If memory serves me right we had roughly 32 kids in a classroom growing up and I'd like to think we turned out fairly well.
To start our painful process we need new spending freezes until the current budget deficits are rectified. Then, and I cannot believe I am saying this, we need to formulate a cap on either length of service or age when it comes to elected positions. As you are correct, these monkeys we call politicians, fear for their jobs more than they fear for making the country prosperous.
I said it was essentially one, which is different. There are differences in employer here, though. One, we have a government employer. Two, the salaries are paid from tax dollars. Three, I'm assuming they have an employment contract, that is why the Governor can't just make the change. If you want to contribute 1.5%, fine, negotiate for it down the road. But to ask for it now, results in a demand from the government for money, which is a tax.
ReplyDeleteYes a contract exists and getting the teacher union to agree to paying for a portion of their health care is something that Governor Christie trying to negotiate. The increase of 1.5% is said to offset some of the cuts that would otherwise be required to balance the budget.
ReplyDeleteNow, if the Governor mandated that all teachers must pay 1.5% then a tax would be created. I guess if it can be done at the Federal level why not at the state level.
Chris, I've read some of the CBO report on the debt and rising entitlement responsibilities and I fail to see how cutting spending and reforming the tax code would fix the budget deficit.
ReplyDeleteRiddle me this. What would you cut? I asked that and you dodged the question? Ok let me rephrase that, OTHER THAN THE HEALTHCARE BILL, what would you cut? Without cutting major amounts of social security/medicare you can't make enough cuts to the discretionary portion of the federal budget to make an impact. It sounds great when you say that 38% of federal spending is discretionary which means it can be cut. Here's the problem, more than 50% of that 38% was national security spending. Non security spending was $533B. Transportaion makes up 76B, Education 46.8B, H&H services 84B. What do you cut? Transportation cuts impact the economy since it reduces the ability of materials to flow within the nations borders. Education hinders future growth because kids are less capable of competing. H&H is things like the FDA, CDC, etc. So what do you cut Chris? The answer is simple - entitlements need to be cut. But how to do balance that with the fact that people have planned for what they were promised?
You see, this is the political quagmire that is "cut spending ONLY" politics.
And as for your flat tax. Ok, let's say that the fed goes to a 14% (made up number) flat tax.
The top 5% of wage earners pay 53.25% of the taxes in this nation (1.28trillion in 2007) at a 33.89% bracket. (not including capital gains here) Now if we went to a flat tax that means that there would be a delta of nearly 20% of their taxes paid for a reduction in % paid of 58.6%. This means that their contribution to the tax base goes down by 750B. (Rough math) Now that begs the question, where do you make up that roughly 1 trillion in contributions to the tax base? Are you advocating tax increases on the middle and lower classes of america to give the rich a massive tax break?
Fact, flat taxes are highly regressive and hit the middle/lower income families harder than the upper class. The best evidence of this are the advocates for flat tax - it's not the poor and middle class economists who talk about it. It's people like Forbes who are multi-millionaires and pay higher taxes because of this.
So again, with this simple math and a little logic I fail to understand how simply cutting spending and reforming the tax code would fix anything without also increasing taxes.
I'll end with an analogy for you to ponder.
You collected unemployment (so have I mind you) from a fund that your employer contributed to. If that fund was under-capitalized the state can raise contribution rates on companies or cut benefits. Having been on the receiving end of that meal ticket which would you prefer?
Personally, I prefer a balanced approach to fixing the problem - raise taxes and cut spending with the following caveats. Require that tax increases NOT go into effect until the Congress has shown $X in spending cuts first. (no idea what that amount is). Make the passage of all new legislation contingent on legitimate funding from either tax increases or spending cuts. And lastly, have the CBO consistently report on the status of the deficit and the moment it breaks even and a small "reserve" fund is accrued, all original tax increases are then removed immediately.
I learned long ago that the best negotiated deals are the ones where everyone leaves feeling just a li'l screwed but also a li'l happy. This would deliver that and still balance the budget. I don't believe yours would.
Source of data regarding fed budget:
http://useconomy.about.com/od/usfederalbudget/p/Discretionary.htm
Kevin
ReplyDeleteFirst off let's talk more about my idea of a flat tax to which I have blogged about a few times. Remember that it has been reported that Warren Buffett only paid 16% of his income in taxes last year after taking all the deductions he is able to. My flat tax proposal does not hurt the middle to lower class. Here is my proposal:
The flat tax would be 15%, and this number is not set in stone, but it would not start until one earns $60,001. So each dollar one makes over $60,000 the Federal Government would take $0.15. Plus, all tax credits will be eliminated. By going to a flat tax and eliminating all tax credits there would be no reason to file a tax return thus the size of the IRS can be greatly reduced.
By establishing a flat tax in this manner does not hurt the lower or middle class. It actually gives them more money. Plus, imagine all the trees we can save by not having to file tax returns anymore. Now, some returns would still exist - C or S Corp's, LLC's and such but individual tax returns would be eliminated.
Now as for what to cut. I agree with you that in order to make this work tax reform (cut) needs to be done in conjunction with budget cuts. I love your idea of having the CBO being referee. The first thing is to phase out all entitlement programs.
1. Medicare - phased out. Anyone already 50 would still be entitled but everyone else no more.
2. SSN - phased out. Same applies here as above.
3. Welfare programs - eliminate duplicate programs for Native and Non-Native Americans. Set strigent guidelines for length of participation with a definitive end time.
4. Education - Reduce education spending by 10-15%.
5. Transportation - Reduce by 10-15%
6. H&H - Reduce by 10-15%
After these changes are made then we take a look at resulting deficits or surplus. If a deficit results then further reduce budgets and programs til we balance the budget with the goal of keeping 10% of the budget set aside for major disasters or war. This is just for starters.
But starting with tax reform is key as the rich do not pay an AGI, as I do not believe that Warren Buffett is alone at 16% AGI, in the 33% range.
Chris, you didn't address at all the issue that the majority of taxes are paid by those making the top 5% of the money. By cutting them to 15%, you effectively cut their taxes by 50%. This means roughly 1 trillion per year (in 2007 values) that will go uncollected. You think you can cut 1 trillion per year from a 3.5T budget and not raise taxes?
ReplyDeleteAs to your cuts, it's quite gratious of you to offer federal tax cuts on education, H&H and transportaion, but you fail to realize the impact those have on the economy, society and our health and food quality.
How do you cut transportation that without impacting an already strained infrastructure that by some estimates needs as much as 1.2 trillion in investment to be brought up to reasonable standards. Again, that impacts economic growth.
Cutting schools does nothing for the citizens, since as has been proven here in MN, cuts to education funding are simply transfered from state taxes to local taxes and it's less efficient to operate in that manner. Not to mention if that doesn't happen you impair the future generations to compete in the world economy.
H&H, I'm just gonna say this, you must not watch the news and see the food quality issues we're having with tainted products from china. And you want to cut this department?
I honestly think you threw out nice sounding numbers without understanding the impacts they have. I say that because you said 10-15% on all of it. Even if you did that do you understand you've only saved 30-40billion dollars at best by cutting that %? You're missing your 1 trillion dollar shortfall from your tax code changes without even having dented the deficit.
Again, pretty talk and quite nice to dream about. But completely unrealistic for the current situation. The numbers don't lie. 38% of the budget is discretionary but only 533B is non-defense spending. Therefore, you can't close a 12 trillion dollar budget deficit AND give the rich a 50% tax cut while trying to balance the budget.
It's a pipe dream based upon funny math. (Oh, and for the record, Warren Buffet has been quoted as saying taxes on the rich should go up, so not the best example of an overtaxed billionaire.)
Oops, typo on my part. The budget is 3.5T but the taxes collected are 2.4T. So that only makes your situation worse. You cut ~1 trillion out of the 2.4T collected and expect to somehow close the tax collection gap AND cut the deficit?
ReplyDeleteI hate to say it, but your math is highly flawed on this subject.
Kevin..the math is high level and I agree without having the actual books in front of one it is extremely difficult to be specific on changes. The 2010 budget for the IRS is roughly $12 Billion dollars. I know that is a drop in the $1T difference.
ReplyDeleteI agree that our infrastructure needs assistance but I do not buy the educational argument. Charter schools and parachiol (sp?) schools are making great strides. Who says that government is responsible for educating Americans?
Naturally Buffett says to increase taxes on the wealthy because he knows through tax credits the reality is they will not pay that much more.
You will probably discount this story because of the source or because self proclaimed "liberals" are interviewed, but I felt it was timely given the comments about Warren Buffett.
ReplyDeletehttp://www.NPR.org/templates/story/story.php?storyId=125918497
I will note that a representative from the American Enterprise Institute is included in the story. Hopefully that will make this more palatable.
If we stay on our current trend of increasing entitlement programs, the size of government and spending something has to be done. Why is it that wealthy liberals, except for Gates, do not give more to charities? Why not establish foundations that will help those in need? The Government has proven time and time again that efficiency and waste exists within all entitlement programs.
ReplyDeleteSo giving the government more money makes no sense. I implore all wealthy Americans that feel that increasing taxes is required to take as step back and assess, honestly, whether government spending or charities would be best for Americans.
It is easy for those that are rich now to say to raise taxes as it will make it tougher, possibly impossible too, for those in lower classes to improve their lot in life.
I do not discount the story just wonder the true motive of the wealthy liberal.
The government is responsible for educating Americans because it's the great equalizer. Or would you rather go back to feudalism in America with the rich receiving educations and the poor who can't afford it being relegated to manual labor jobs? That's what a non-government education system in the past has given us Chris.
ReplyDeleteAnd, your math is not high level, it's flawed. Even if you cut 10-15% of all non-defense discretionary spending in the Fed budget you only cut about 70B from that total. It's a drop in the 1 trillion dollar annual deficit and with your flat tax increasing that deficit to 1.75T. Also, since most baby boomers are 50+ your plan to phase out Medicare and social security are moot since the obligations already exceed the amounts in those funds.
I despise that this is where we are, but I'm realistic enough to know that the only ways to fix this situation are extremely painful. Those ways are extreme fiscal spending reductions with caps on future spending, a balanced budget amendment to the constitution, converting the Fed to GAAP accounting rules for transparency, and tax increases across the board.
Americans have lived in the glut that has been the federal tit for decades. It's time we cut that off and make them repay the benefits they've taken from others pockets.
Now, I've hammered your proposals so I'll lay out mine out of fairness:
1. Massive cuts to social security. I'd phase it out completely and put in its place a MUCH smaller fund that is similar to unemployment for the extremely poor elderly. We need a safety net but it should have requirements to collect from it such as being below the poverty line. I'd also remove social security from the fed's mandate and have it managed by private enterprise with companies bidding for the opportunity to manage it. Furthermore, the funds in the account would be off limits to congressional spending and funny accounting.
2. I'd cut Medicare spending by 50% and make it needs based. I know plenty of people who use Medicare who could just as easily pay their own insurance costs.
3. I would leave education spending flat but do away with unions and pay teachers according to performance like a real business.
4. I'd increase transportation spending - this means good paying jobs for Americans that can't be outsourced.
5. I'd increase taxes by 2% across all tax brackets until the deficit is paid down. It would have the following caveat's that I laid out in a post above; prior cuts to spending required to trigger tax increases, requirements that all new legislation be spending neutral (paid for), and that as soon as the deficit is eliminated and a small reserve fund is created the taxes are eliminated.
Conservatively, these changes would cut between 1-1.2T from the fed budget AND increase tax revenues by between 400-600B. This would bring the fed budget below the taxes generated and have a surplus of 300-500B per year to pay down the deficit. With a 12T deficit it would still take 20+ years to pay that down, even with these draconian cuts. But, these are real numbers, not funny math.
It's a bitter pill, but until we get out of this deficit we cannot have a populace free of government control.
Kevin
ReplyDeleteI am a product, as you are, of the public school system. I think the system is great but tweeks are needed. A tweek I see we agree on are the Union stranglehold. The State needs a way to hold these teacher more accountable and the ability to get rid of teachers just riding out tenure. Unions have served a valuable purpose in getting fair wage and improved working conditions while laying the foundation of tenured workers no longer pulling their weight.
Yes, my math may be a bit fuzzy but I think there is a real way we can get a flat tax to work. We have similar groups in Government that run the system for Native Americans and the rest of us. Why do we need this duplication? Why does a member of Congress need to be paid over $125K a year? Why does the President need a salary in excess of $500K a year. There is a lot of ways we can shrink government, eliminate tax credits, phase out entitlements and still implement a flat tax.
That being said, I like your proposal to achieve a surplus and which time a flat tax could be implemented to take government to the next level.
We most definitely agree on union removal from schools. I blame the unions for their major role (not the only ones mind you) in the poor state of our school system. Guaranteed pay raises regardless of performance and the inability to fire failing workers is a hallmark of a failed system union system.
ReplyDeleteUnions aren't bad in and of themselves, unless they become too powerful and the interest of the union outweigh the interests of the entity they are serving. In essence, when the union becomes a busines itself, it is a problem.
I think we agree that cutting spending is critically important. My point is that currently we cannot achieve a balanced budget through cuts alone unless we make massive cuts that impact every aspect of life. It just won't happen, we'd have riots in the streets.
My goal of achieving a surplus through cuts and taxes is the ONLY way I can see to get us out of debt. We all have a responsibility to fix it and that means bearing a burden, not just the rich. Then once we have no debt as a nation and a "rainy day fund" for emergencies we could have real and serious conversations about how to run this country.
But first things first, a balanced budget amendment to the constitution is critical to the success of any attempt to reduce the deficit. Sadly, NO MEMBER OF CONGRESS is pushing for this right now.
We should be asking them why they aren't.
I agree with you on the balanced budget amendment for the Constitution. Most members of Congress are in survival mode right now and it up to Americans to speak loudly with the vote by removing every sitting elected official and replace them.
ReplyDelete