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TMFFlushDraw (94.50)

A Fool's View On The Deficit Panel



December 01, 2010 – Comments (4)

I thought a few words about today's release of the deficit panel's proposal was in order considering the attention it is getting in the press. 

A moment for disclosure: I am a conservative and consider myself a Democrat. Maybe that makes me an oxymoron, maybe it makes me a moderate, in either case I think I view ideas from both sides of the aisle with a fair amount of reason.

With that out of the way lets get on to the real issues. Today's proposal by the deficit panel contains cuts to government jobs, defense spending, eliminate the mortgage deduction and lower taxes for some and tax capital gains the same as income (which Fools may want to pay attention to). And I think it's all great... Why?

Because there is plenty for everyone to scream about. Therefore no one is favored, everyone is punished, we all pay the price to save this great country from... itself. Lets go on to who's complaining and why I don't feel sympathy for them.

Homebuilders: This industry lived on the high hog during the bubble and now that its being cut down to size is complaining about everything. But is there merit to the thought the housing market would tumble if we quit deduction mortgage interest from taxes? That didn't seem to happen in Canada. Buyers may give a little thought to the change but over time prices will adjust, the housing industry will return to normal and the world will go on.

Investors: There could be a lower corporate tax rate to go along with increased capital gains taxes so this hit might not be as hard as initially thought. In either sense I'm OK with it. I don't think it's fair investors get to pay less taxes than working folks and I don't buy the argument that lower capital gains rates spur growth. Did that happen when Bush lowered rates? NO!

Seniors: Cuts to Medicare and Social Security are absolutely necessary and none of the changes sound too crazy to me. As someone far from retirement I never expected the same deal as my grandparents and maybe my parents will get. But that's OK. I would like to see more with Medicare but haven't we seen these cuts coming for years?

This debate will probably rage on longer than necessary but I for one hope they pass quickly. Obama is starting to get out of stimulus mode and into deficit cutting mode (stimulus was necessary when he took office so this will be a key transition for him). With most economic indicators (besides unemployment) giving strong signals the economy can do its part to balance the budget by growing a little more than anyone expects. We aren't quite at a crisis point yet but see Europe get there might give us the kick in the pants we need. Here's to hoping we can work together, share in the sacrifice and get something done in Washington.


4 Comments – Post Your Own

#1) On December 01, 2010 at 1:55 PM, Melaschasm (< 20) wrote:

My biggest complaint is that the spending cuts are way to slow, and come way to far into the future. 

At a time when we are running a 1.5 trillion dollar annual deficit, they want to cut spending by several hundred billion per year?  And those spending cuts are backloaded?

We need to cut annual spending by a few hundred billion next year, and by 1 trillion within the next five years.


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#2) On December 01, 2010 at 2:33 PM, Entrepreneur58 (37.08) wrote:

They should only consider cuts to social security and medicare if they first cut pension and healthcare benefits for federal workers.  Why should I give up any of my benefits if federal workers get to keep all of theirs?

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#3) On December 01, 2010 at 2:37 PM, Entrepreneur58 (37.08) wrote:

Oh, and the other problem is that all government spending is always someone's income, so cuts in spending will end up sinking the economy.  Ireland cut govenment spending and raised taxes and their budget deficit actually got worse.

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#4) On December 02, 2010 at 12:02 PM, TMFFlushDraw (94.50) wrote:

@Melaschasm and Entrepreneur58

First off, I agree to an extent on spending cuts next year and Entrepreneur58 points out the pitfalls of doing cuts too quickly. Whether we want to admit it or not the stimulus has helped keep demand and jobs over the last year and a half so cutting gov't spending quickly would do just the opposite.

Secondly, the panel was not put together to find solutions for next year. They were very clear that their mission was to find solutions for the long term. 2011 and 2012 is an entirely different debate which hopefully the Republicans will take up quickly (although I think we'll be disappointed there).

As for the pension and SS remark, I tend to agree although I don't think making it personal is the right point to make. Companies are almost done dumping pensions and workers know they have to fend for themselves in retirement besides some limited SS income. The free market is saying no to pensions and I agree the federal government should do the same thing.


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