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starbucks4ever (79.50)

I balanced the budget. And it wasn't too difficult



November 21, 2009 – Comments (13)

The Economist magazine had an article about various options how to balance the 2014 budget. Normally such articles run like along the lines: "Option 1: tax charity organizations proving free soup to the hungry - Savings: $30M; Option 2: Allow Medicare to pay for involuntary euthanasia of certain groups of patients - savings: 50M". But this article was more reasonable than that, so I tried to find the missing $726 billion using the options available.

I rejected the proposals to raise retirement edge to 70 because that was too drastic for my taste; I felt sure I'd find some fat to trim someplace else. I indignantly threw away the option to change benefit inflation index because that was clandestine theft. If you take money from someone, you should do it openly. You should never make inflation appear lower than it is, the only result of such lies is loss of credibility. Similarly, I rejected proposals to eviscerate Medicare/Medicaid in one way or the other (by raising Medicare age, or converting Medicaid shares to block grants, or reducing Medicaid to wealthy states). This doesn't mean that I don't think there's no savings to be realized there, but I rejected it because they didn't mean sensible cuts like eliminating fraud, instead, they just wanted to cut services across the board. That was unacceptable to me because such savings would be illusory. In the end these services would still have to be purchased, only from the private system and at even higher cost. But I accepted the proposal to reduce highway funding because I think the roads will survive it; meanwhile, we get $8 billion of savings. 

Then I chose to eliminate tax deductions for employer-provided health insurance. This saved me $215 billion. I said earlier that I don't think cutting medical services was a good idea. But tax deductions is a different matter. First, they distort prices and discourage market participants from behaving rationally. Second, they provide a way for the HMOs to raise premiums by the same amount that you subsidize. So I felt that nothing very horrible would happen to healthcare if we remove the deduction. HMOs would have to swallow the larger part of the losses, and even though they want you to think otherwise, they have enough resources for that. Then I eliminated the mortgage interest deduction for similar reasons. This deduction is not helping home buyers at all. Lower effective interest does not make anything more affordable if you pay that lower interest on a higher principal. Besides, it means that the more you overpay for the house, the more the taxpayers will sponsor you. I eliminated the deduction of state and local taxes because this tax deduction makes the tax system less progressive, and, perhaps just as important, more complicated. I eliminated the deduction for the capital gains on homes because I feel that all capital gains should be treated equally. If you earned a capital gain, you can well afford to pay the tax. I then got rid of the deductions for property taxes and muni bond interest. Now I had a total of $560 billion of savings. Then I raised fuel tax by 50 cents a gallon to get additional $62 billion. Now I had saved as much as $622 billions - not so bad. But I needed another $104 billion. With a deep sigh I agreed to the introduction of a VAT. The Economist was proposing a 5% tax to save $324 billion. Fortunately, I did not need that much. A 2% tax would be fully sufficient for my purposes.

So now I had the 2014 budget fully balanced, and I had nothing to blush about except that part where I showed weakness and agreed to the VAT which I generally think is a bad idea. But heck, I accomplished the mission and the playing field was stacked against me. After all, they didn't give me the option to cut military spending even by a cent, or remove farm subsidies, or remove the tax deductions of education expenses and capital losses, or cut the salary of government bureaucrats by 10%. If I had a more level playing field, I could balance the budget without introducing the VAT, and maybe even produce a surplus. This exercise served to reinforce my belief that most economic problems are self-inflicted and are easy to solve if only you have guts and can ignore the screams of special-interest groups. Unfortunately, the current holder of the top government job lacks both requirements. When he hears a lobbyist cry, his eyes stream with tears...

13 Comments – Post Your Own

#1) On November 21, 2009 at 4:08 PM, starbucks4ever (79.50) wrote:

of course, "providing soup" instead of "proving soup" and "retirement age" instead of "retirement edge". Those goofy typos!

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#2) On November 21, 2009 at 4:46 PM, DivMonk (85.33) wrote:

I haven't bought a house yet, but it seems to me that capital gains on a primary residence are unfair.  If someone buys a house, and a few years later moves, sells their house, and attempts to buy another one, they'll end up being thousands of dollars short due to having to pay capital gains on their previous residence. 


Many of your suggestions seem reasonable, but with all those added expenses on taxpayers (like 50 cents more per gallon, capital gains on primary residence, removal of tax deductions for corporations), that means taxpayers will have less money to spend, which will produce lower corporate profits, which means lower tax income.  So to make up that difference you might need some more income somewhere. 

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#3) On November 21, 2009 at 6:51 PM, Teacherman1 (< 20) wrote:


Copy it, paste it, and send it to the Prez. Who knows, he may be looking for some "real" ideas.


As for the 50 a gallon tax, drive less. Since you haven't bought a house, eliminating the capital gains tax should not affect you. Houses are not likely to gain enough in value by then to have a material effect. Corporations don't pay much in the way of taxes as it is, and with all the losses they have been racking up, not likely to for a while yet anyway.

Don't worry, the Govt. would never do anything as simple and straight forward as this anyway.

Have a nice weekend. 

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#4) On November 21, 2009 at 7:32 PM, DivMonk (85.33) wrote:


50 cents a gallon tax will affect a lot of people regardless of how much they drive. If I'm driving less, that means I'm going to less disctretionary places, meaning those places will likey financially suffer.  If they suffer, that means less business tax, less shareholder dividend and capital gains income taxes, and those companies might have to let some workers go, which means less income tax from them.  It also means that corporations have higher expenses in everything they do, which they pass on to everyone else.  

As someone who has some discretionary income, that's not the end of the world for me, but if someone's making 30k a year and energy costs and product prices have gone up, then they have a problem.  

The above tax scheme seems simple and straightfoward because it focuses on just one aspect of taxation:  maximizing tax income.  It skips the other part (the difficult part), which is minimizing the ramifications from that tax income, like rising unemployment, lower spending and savings, and that sort of thing.  The administration has to determine the optimal way to generate income while minimizing problems that that income can generate. 

I mean, it's not like it's easy and I have a solution, but just putting a lot of obvious taxes in some post on the internet isn't some miracle answer. 

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#5) On November 21, 2009 at 8:20 PM, ChrisGraley (28.50) wrote:

I'd prefer spending cuts on pork.

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#6) On November 21, 2009 at 8:27 PM, DivMonk (85.33) wrote:

I spent some time examining Bill Clinton's presidency to see how he did it.  After years of deficits from Reagan and Bush Sr., Clinton managed to create a surplus in his second term as president.  Bush Jr. inherited that surplus and quickly turned it into a deficit again.  And now after inheriting the economic crisis, Obama is creating the largest deficit on record. 

But after obtaining as much info as I could on Clinton's presidency, I just don't know how he did it.  Maybe he just got lucky enough to run the country at a time of relative peace and prosperity, or maybe it was because of him and his administration that we had that peace and prosperity.  He cut costs and increased revenue and gave us a surplus.  Either way, when he has advice nowadays I listen.  

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#7) On November 21, 2009 at 10:13 PM, ChrisGraley (28.50) wrote:

Link for InvestingMonk

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#8) On November 21, 2009 at 11:22 PM, Harold71 (< 20) wrote:


I would also balance the budget.  But I would eliminate all personal income taxes.

And there would be no more undeclared wars.  Ever. 

Now there's some savings.


But I accepted the proposal to reduce highway funding because I think the roads will survive it; meanwhile, we get $8 billion of savings. 

Wow.  Many roads around here are an embarrassment to the United States of America, yet we pave the sandbox.  More amazing -- so few see that as the first thing to change.



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#9) On November 21, 2009 at 11:41 PM, Teacherman1 (< 20) wrote:

Investing-My comments were tongue in cheek.

There is no easy way to balance the budget.

That is why it won't be done any time soon.

Everyone is willing to sacrifice, as long as it is someone else they are sacrificing. 

I also agree with Chris (at least I assume that link was to show that Clinton didn't balance the budget).

Clinton led by "polls". What ever was popular was the way he went.

If and when were are finally able to balance the budget and get a surplus, (and that is a mighty big IF) , congress will just find something else to spend it on.

Granted, we are in a challenging and difficult time right now, and some of the things that have been done, had to be done now, but many did not and do not. 

I did not and do not like Newt Gingrich on a personal level, but he was instrumental in bringing the budget into balance, and not Clinton.

Until we as a county, can get a congress that truly represents the middle majority of America, and get away from the extremes of UltraLiberals and UltraConservatives, spending all of their time pursuing their own interests, and  start spending their time pursuing the interests of those whom they are supposed to be representing, we will just continue to waffle from one chaotic situation to another.

In some ways it is rather simple. We need to change from a congress that spends their time coming up with programs and then look for ways to pay for them, to one that looks a what we can REASONABLY pay, and then spend their time on how best to spend what we have.

I will now climb down off my soap box and go back to looking for good investments.

Have a nice weekend. 



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#10) On November 22, 2009 at 12:04 AM, starbucks4ever (79.50) wrote:


I see your point, but trading up is about 100 times easier than buying your first home, so even if paying a tax is unpleasant (and I have yet to see a person who thinks it's pleasant) you should still survive it. Just my opinion.


Thanks for the suggestion :) 

 InvestingMonk again,

Just one other trivial point. Nobody suggests that balancing the budget should be painless. By definition, you have to withdraw some privileges from some people. So I did not intend to accomplish it in a way that would not leave consumers with less money to spend. For that you must turn to Jesus Christ who knew how to split five loaves of bread among five thousand people and keep everyone full. I am not as omnipotent :)


Come on, the American roads are excellent. You should have seen the bad ones. 


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#11) On November 22, 2009 at 1:15 AM, ChrisGraley (28.50) wrote:

zlog, The biggest mistake a government can make is to tax success.

You should tax what you want to discourage only. 

While I believe that you should tax the wealthy more than the poor, you should do it on their consumption only.

I'll give you an example on the capital gain on a home sale thing.

An elderly man's wife passes away leaving him with half of the social security income that he had before. Something has got to give, so he decides to sell his house and buy a smaller one to make ends meet. Should this really be taxed as a capital gain? Are we doing the country a service by reaching into the pockets of an elderly man that can't currently pay his bills?

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#12) On November 22, 2009 at 2:37 AM, starbucks4ever (79.50) wrote:

"The biggest mistake a government can make is to tax success."

Hi,  ChrisGraley.  I see where you're coming from, but I don't think capital gains on a house is an example of that "success" that we must be afraid to discourage. It's not like the man was toiling day and night to produce this capital gain. Steve Jobs did that, inventing iPods and iPhones to make his stock go up. Your elderly man did not create that consumer item, he merely used it. He might have renovated a bathroom or added a swimming pool, but all that is already reflected in his cost basis. The capital gain has materialized because nominal salaries have grown or interest rates have fallen, or the neighborhood went up, or speculators' mood has changed. The elderly man did not make it happen and therefore he did not deserve any encouragement. By the same token, you and I did not bring any improvements to the AAPL shares that we may own so we also did not deserve any encouragement. Therefore all three of us should have our capital gains taxed at the same rate. If anyone did deserve encouragement for success in this story, it was the construction worker. Unfortunately, that nameless hero of Capitalism was an illegal Mexican immigrant who received $10 an hour for his labor and did not get any capital gains deduction because he didn't have any capital gains to report.


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#13) On November 22, 2009 at 2:14 PM, lucas1985 (< 20) wrote:

Here's an excellent report on the federal deficit and debt by the Center for American Progress (a liberal think tank)
It paints a scary picture:
"We need to ask serious questions. Can the United States afford to continue to spend so much more of its national income than the rest of the world on defense? Are we going to pass health care reform that realizes budget savings? Can taxes, beyond what the president has already proposed, be part of the picture? Social Security, agricultural subsidies, social programs, education spending, and everything government does is going to be examined—with everyone having areas they carve out as sacrosanct and areas they don’t. It is important that the balance is right so that the solution is not worse than the problem. The sooner we recognize that the set of hard lines that have been drawn make an answer impossible, and some of those lines need to be erased or moved, the sooner we will be on the road to getting to a solution. Pretending the problem doesn’t exist, and that it isn’t big and difficult, won’t get us there."
The legacy of 30 years of Conservatism is mind-boggling.

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