1/24/2013 12:30 AM ET|
Why Washington can't fix the budget
But as an illustrative tool, it's just fantastic.
The first thing you'll realize is that the only easy options big enough to move the needle on the spending side are related to health care -- like block-granting Medicaid to the states, raising the Medicare eligibility age to 67 (to match Social Security's full retirement age) and raising Medicare premiums.
Then, the hard choices kick in. Do you roll back the Obamacare expansion of health coverage or establish a new surtax on the rich (beyond the surtax that's already part of Obamacare)? Do you slash spending on the Navy, given the rise of China, or do you enact a cap-and-trade carbon tax? Do you create a new source of taxation via a federal value-added tax or cut funding on highways, schools and food stamps?
And before you assume the rich should just pay more, know that we've already got one of the most progressive income tax systems in the world. As a percentage of the federal tax burden, the rich's share has grown from 55% in the 1970s to 70% now (as their share of income went from 45% to 51%). Yet over the same period, the middle class' share of taxes has fallen from 14% to 9% (as their share of income went from 16% to 15%).
And before you assume we can just continue to neglect our infrastructure and education system, know that lower reading and math scores and failing roads and bridges hinder the economy's ability to grow -- which will weaken our ability to repay our debts in the future. Already, consulting firmMcKinsey estimates that road congestion costs the country more than $100 billion a year in fuel costs and lost time, and the American Society of Civil Engineers says infrastructure woes could cost us 3.5 million jobs by 2020.
The blame game
Given the difficulty of the task at hand, and the ongoing public preoccupation with low taxes and unhindered government largesse, it's no wonder we are now barreling toward a government shutdown at the end of March.
House Republicans today passed a measure that would suspend the debt ceiling through May 18. Senate Democrats and Obama have indicated they would go along. But that still leaves open the question of an actual budget accord to keep things running beyond March 27.
One intriguing part of the debt ceiling suspension: If either the House or Senate doesn't pass a budget, members of that chamber don’t get paid. No budget, no pay. It’s a jab at Senate Democrats, who haven’t passed one in years, but Democrats seem willing to accept the provision. Perhaps they’re worried about the visceral satisfaction many Americans would feel about the idea of pulling Congress' pay? (And why not their health benefits, too?)
It's about showmanship, not statecraft.
It's political jujitsu. It shifts the dialogue from whether the GOP will push the country into default or stop payments for seniors on Social Security to why Washington can't pass a budget and whether elected officials should get paid if it doesn't. And it also shifts the playing field from the debt ceiling to the budget, turf the GOP believes is friendlier.
But, like the fiscal cliff deal, this merely postpones -- yet again -- the tough political decisions over issues like taxes on the rich, entitlement reform and reducing health care cost inflation.
Remember, what lawmakers are avoiding is the debate over how much damage to do to the economy via tax hikes and spending cuts. There is very little appetite for or discussion of short-term stimulus. And thus, no good economic news can come out of all this once the posturing and delays are finished.
It's like this: The outcome of all of this budget drama will be a drag on the economy. The fiscal cliff deal alone will trim 1.5% off GDP growth this year. The only question is how large that drag will turn out to be. The bigger the drama, the greater the hit will be due to the shock to investor confidence.
As the bad news comes out, the stock market won't be able to ignore the downside risks to still-elevated economic growth estimates on Wall Street. That's why I continue to recommend that investors stay cautious, sell into current strength and batten down the hatches by moving into defensive assets like Treasury bonds and gold. Examples include the Market Vectors Junior Gold Miners (GDXJ) exchange-traded fund and Yamana Gold (AUY).
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Click here on the Edge websiteto sign up. Mirhaydari can be contacted at email@example.com and followed on Twitter at @EdgeLetter. Go to the Edge Letter Sample Portfolio to view his current stock picks.
At the time of publication, Anthony Mirhaydari did not own or control shares of any company or fund mentioned in this column. He has recommended Market Vectors Junior Gold Miners and Yamana Gold to his money-management clients.
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5. Cut the size of the government to a realistic level, about 50% of what it is now. That's a good start and if I had the time I would add a lot more to the list. Just doing these 5 things would come close to balancing the budget. Oh I forgot 6. SUBMIT A DAMN BUDGET! AND STICK TO IT! THAT'S WHAT THE WIFE AND I HAVE TO DO!
They cant fix the budget because they have their head up their A S S
I wish I could Spend like they do. Accountable to no one
When they talk about budget cut they never start with there pay.
Now if only there were special interest groups willing to pay bribes for them to pass bills that cut Washington spending then at least there would be competition.
The world economy (as is) can only survive through spending. Eventually the money runs out.
I live out in a very rural, cut off area. Like the song says " a country boy can survive". Let 'er collapse, I can survive!
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