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Chart From Wall Street Journal 11/11/10

I saw this chart in the Wall Street Journal on Thursday, and it’s great. (I hope they don’t mind me using it.  They shouldn’t considering I am using it in tandem with praise for their publication; plus I have a subscription, doesn’t that warrant some leeway?)

I don’t even know if you can call it a chart, more like a list with little pictures.  Very quaint and to the point.  I’m going to list some of these and dissect them individually; but honestly I know meaningless blocks of text put most of you to sleep immediately. That’s the great thing about being able to sum up suggested changes in fiscal policy in five words.  People don’t get bored after just five words.  But whatever, this stuff is important.  Before I get into specifics let me just talk about where these proposed ideas came from.

THE DEFICIT PANEL

Back in December 2009 Senators Kent Conrad (D-ND) and Judd Gregg (R-NH), in a rare display of bipartisanship, were pushing bill S.2853, the Bipartisan Task Force for Responsible Fiscal Action Act of 2009.  The purpose would have been to suggest ways to reduce the massive federal deficit.  S.2853 failed, I think it was probably because the task force’s report was not amendable, and a lot of congressmen weren’t comfortable with taking an all or nothing piece of legislation that could have dramatic impacts on their constituents.

To Obama’s credit he actually didn’t want the failure of S.2853 to be the end of the debate on the country’s looming deficit crisis.  On January 28 2010 he created the National Commission on Fiscal Responsibility and Reform.  Unfortunately their findings would not  be considered as seriously by congress as the Task Force for Responsible Fiscal Action’s findings would have been. He also kept the bipartisan makeup suggested in the senate bill, the only difference is he added a lot more executive branch appointees.  The senate version called for eight democrat, and eight republican lawmakers, as well as two executive appointees.  Obama’s has six of each party’s lawmakers and six of his own appointees.

So fast forward to November 10 2010 and we get the list you see at the top of the page.

HOW THESE THINGS MIGHT AFFECT YOU

Defense Spending

Unless you work in the defense industry this probably wont affect you.  But an interesting note is Secretary of Defense Robert Gates has already been in the process of finding $100 billion to cut from the defense budget.  The purpose of those cuts however, was to transfer that money into modernizing our capabilities for the current conflicts we are facing.  It’s just another step in the long process of shifting our military from it’s cold war mentality to an anti-terrorism mentality, which I think most people can agree with and get behind.

Social Security Age

The only discrepancy between the box at the top of the screen and the WSJ article that goes with it is the Social Security part.  The Deficit Panel suggests raising the age to 68 by 2050, and only raising the age to 69 by 2075.  If you happen to be 27 then I guess you’re in luck, you might be able to squeeze in just under the deadline.  As it stands now if you were born after 1960 you can collect benefits at the retirement age of 66.  In essence our generation is just going to have to work a couple years longer than our parents generation.  That is unless you start investing early enough to retire on your own dime, as I talked about a few days ago.

Gas Tax

I think we’re actually lucky in Phoenix, I got gas for $2.79 yesterday.  The national average as of 11/8/10 was $2.87 a gallon.  A 15 cent increase on each gallon effectively makes that price $3.02 a gallon.  Don’t freak out yet, none of these measures are official, and some may never become law.  The gas tax generally goes towards maintenance and expansion projects for transportation infrastructure.  It’s one of the few taxes that is kind of a pay-per-use system.  The more wear and tear you personally put on those roads, the more taxes you’re paying in fuel, and the more you’re paying your part of the maintenance for those roads.  It’s not a terrible idea, and I suppose increasing the amount we all have to pay to use our infrastructure will reduce the federal governments burden when it comes to keeping those things maintained.  I’m sure there are lots of competing viewpoints on this, so feel free to throw your own two cents in the comments section if I’m way off about that.  It does make me feel like a liberal just saying it.  I guess what I will say is this tax increase wouldn’t be necessary if Obama and Pelosi hadn’t dumped so much money into failed stimulus projects that only dug our deficit hole deeper, but both parties in the federal government are to blame for the canyon we’re in now.

Other Federal Expenditures Cut

I tried to understand the Alternative Minimum Tax (AMT) but that was taking too long, and I don’t think I have any readers who might get a mortgage exceeding $500,000, so I’m gonna skip those.  I do think cutting 10 percent of the federal work force is a fantastic idea; and a long with it they suggest freezing federal salaries for three years. There is actually a pretty good editorial over at Yahoo News about the unfortunate number of workarounds available to circumvent a salary freeze on federal employees.

Reducing the federal workforce by 10 percent will remove a number of redundant bureaucracies and, in my opinion, justifiably clear out a lot of the ones that are under-performing in their specified task, or simply unnecessary to the functioning of our government to begin with.  During the 2010 midterm campaign we were looking at about 22 percent of federal bureaucracies that could be cut, 10 percent is at least a start.

I fear even getting started on farm subsidies, because I’ll probably rant excessively.  Heres a graph put out by the USDA in 2008.

The history of all this is a bit complicated and very well might stop any readers who made it this far from going any further, but I’ll over simplify it a bit to make it quick.

In Burton Folsom Jr.’s book, New Deal or Raw Deal: How FDR’s Econimc Legacy Has Damaged America, he explains how farm subsidies really got started in 1933.

It began with the Agriculture Adjustment Act, which according to Folsom primarily did two things.

First, it set minimum prices for various crops. This meant instead of using supply and demand to let prices naturally fall where they may, the government decided to step in and ensure a certain minimum price, or price floor, for farmers.  This inevitably created a huge subsidy because, according to supply and demand, the crops were simply not worth that minimum price.

The problem the country ran into when Hoover did the same thing in the previous administration, setting a price floor for cotton and wheat, was all the farmers who weren’t producing those crops saw the profits they could be making from that minimum price the government set.  They began producing those crops like crazy, and farmers who had already been planting those crops were expanding their acreage to rake in the subsidy money.

The government quickly stopped that particular subsidy.  But they ended up having to sell 250 million bushels of wheat and 10 million bales of cotton it had been forced to purchase and stockpile, and because of overproduction and saturation of the market, at a huge loss.

That led to the second part.  In 1933 the federal government began to pay farmers not to produce.  This was done to avoid having the huge stockpiles again.  In their minds it was cheaper to pay the farmers not to plant than have to sell off overproduction at a loss.  Plus, by keeping production down it artificially makes the crop scarce.  A lack of supply will always drive the prices of those crops up.  All it really did was force us to exponentially increase our imports of those food stuffs.

There are still price floors in place today, and that is a big part of the reason why our farm subsidies are still so high.

In Conclusion..

Congratulations if you made it through this entire post, I know it was really long, but this stuff is important for our future. I know it’s hard to care when you’re young but we will have to pay for the mistakes made in the past, and we have to avoid repeating those mistakes in the future. If the United States wants to stay on top, or even remain competitive, we have to change the way we do things in this country.

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One Response to “The Deficit Panel and Why You Should Care”
  1. Dennis says:

    I agree that there are a lot of good ideas in the Deficit Panel. I’m not sure about the gas tax though, because it really effects the working poor more heavily than anyone else. When you bought gas for $2.79, about $0.53 went to various taxes – state, fed and local. $0.18 of the $0.53 was to the feds for road repair. That amount was set in the ’80′s and it was not indexed for inflation, so it probably is a little low. However, you take a big hit politically when you increase gas prices because unlike social security or taxes it effects everyone – and they feel the effects every week when they pump gas. I’d like to see more information on how they handle the tax money they collect for roads and see how it is spent before they just increase the tax.

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