Recently, readers have written, expressing a willingness to sacrifice to help the federal financial situation. Donald Pattillo was willing to accept a 10 percent cut in his Medicare and Social Security payments, a dollar per gallon increase in his fuel tax and loss of the home mortgage interest deduction.
The willingness of people like Mr. Pattillo to sacrifice and to specify how they are willing to sacrifice is exactly what is needed to make the changes necessary for our federal system to be placed on sustainable footing.
In March, the Congressional Budget Office issued a report titled “Reducing the Deficit: Spending and Revenue Options.” It is an excellent, easy-to-read document that all who are interested in solving the problems should read. Similarly, last December, the Joint Committee on Taxation issued a report detailing the cost of each component of federal spending.
In CBO’s report, this year’s deficit was estimated at $1.5 trillion. Mandatory spending, of which Social Security and Medicare comprise approximately 60 percent, was estimated at $2.1 trillion. Thus, Medicare and Social Security outlays are anticipated to be approximately $1.26 trillion. Eliminating 10 percent of those costs would save $126 billion. The home mortgage interest deduction currently costs $94 billion. So, approximately $220 billion would be saved by these changes. This is no small figure and, if coupled with many other substantial reductions, would substantially reduce but not eliminate the deficit.
The gas tax is dedicated to roads and bridges. It’s currently 18.4 cents per gallon. Increasing this tax to $1.184 per gallon would produce a tremendous amount of revenue. However, it would tremendously hurt people who must drive a lot, as well as purchasers of things trucked. Vacations would greatly diminish. At this weak economic time, it’s very unlikely something like this would pass Congress. Similarly, with the housing industry in dire straits, it’s very unlikely that the mortgage deduction will be eliminated any time soon.
Some people live exclusively off Social Security. Because people are impacted by the potential changes differently is why Congress needs to listen to its constituents, get advice from financial experts and then put together a package that will pass to at least come close to balancing the budget.
For our fiscal path to be sustainable for the next 25 years solely through spending cuts, CBO said cuts of at least 20 percent would be needed by 2020.
Such cuts are not possible without cutting entitlements or military spending or both. In contrast, CBO said that making the path sustainable solely through tax increases would require a 25 percent increase.
The vast majority of anticipated increases in spending are in the areas of entitlements and net interest expense. These currently comprise approximately 62 percent of federal spending, but are expected to grow to approximately 72 percent in the next 10 years.
Particularly worrisome is the anticipated growth of net interest expense.
At $197 billion in 2010, it equaled 9 percent of total tax revenue. By 2021, it is anticipated to be $792 billion, equaling 16 percent of total tax revenue. Few people like paying and not receiving a service or product in exchange.
People need to decide what they want. There is no more time for mushy politicians’ promises or potential cuts if financial triggers are pulled.
If someone wants no increases in taxes, he/she needs to find and support a candidate who says he/she would act to get it done solely through spending cuts, but only if that person specifies what to cut in actuarially and mathematically sound terms that put the country on a sustainable path.
If one wants to keep our current system, he needs to be willing to contribute 25 percent more in taxes or find a way to make taxes increase by 25 percent, and get behind candidates who will specifically state in actuarially and mathematically sound terms how taxes would be increased.
Finally, we need a scorecard of costs and revenues for all government expenditures and then require each candidate to specify how he/she will get from A to B (i.e., a fiscally sustainable path), and to what extent he/she would be willing to compromise if passage of his or her way is not possible.
One thing is for sure: The sooner we act, the better.
Allen Buckley is an Atlanta attorney/CPA and a two-time Libertarian candidate for the U.S. Senate.
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