After the election is over the next President will have to move the nation forward with the realization there will be no easy answers. Most of us know this already. We cannot continue to move forward with trillion dollar a year deficits, a problem which so far has only received lip service from the Congress. Can we expect a difference in the next four years?
Pressing for more taxation or for less are non-starters. The question is are there other ways to improve revenues that will become politically feasible going forward. Major revisions to the tax code which will lower rates and increase revenues can help. Coupling this approach with a major reduction of deductible expenses for both individuals and businesses can help us to raise revenues, but but we will do this only if we do not suppress economic growth at the same time.
Government subsidies also need to be gradually reduced or in some cases cut altogether. Agricultural and farm subsidies have, for example, gone completely out of control. We could cut those subsidies by only 10 percent to provide the funds necessary to build a solar power network from coast to coast providing most if not all of the domestic and industrial power needs of the nation. I’m not suggesting we should do this immediately, but we should begin the cut agricultural and other subsidies with the idea of reinvesting portions of those cuts into rebuilding the nation’s infrastructure. Infrastructure spending cannot be avoided. In most cases savings on future maintenance costs of currently collapsing infrastructure will more that pay for what we replace those outmoded structures with. Improved energy and other resource conservation pays for itself. It’s time we looked at these matters realistically. The major political problem is how to factor in long term savings against immediate capital outflows. Spending on infrastructure will pay for itself in the long run. Cost-sharing between national, state and local governments can help and will further stimulate economic growth by putting many people to work. It’s madness to have a policy of only repairing infrastructure after is has completely broken down and caused injury or death.
In addition to reducing or eliminating government subsidies, major reductions in defense and entitlement spending need to be made. Reduced defense spending can easily be coupled with current Defense Department reassessments of the longer term directions necessary in a modern world. We are already beginning to look more seriously at cost overruns and waste in the Defense Department budget. Social Security is not broken but needs to be reassessed. Starting at a more advanced age appears reasonable. The system would be helped if we were to increase retirement age by one year immediately and then by an additional year after five years and then again after ten years. By 2022 you would begin Social Security benefits only after age 68. There should also be a means test. No Social Security benefits to those who retire with 1-2 million dollar IRAs.
The major entitlement area where savings are required but difficult but critical is Medicare and Medicade. Medicine is one of the few business where productivity increases have never been reported. Medicine always gets more and more complicated and more expensive. Reduction in medical costs are being addressed out of necessity as new healthcare programs and future government cuts will come with reductions in Medicare payments to doctors and healthcare providers.
In addition, elevated medical costs associated with obesity, poor nutrition and lack of exercise will gradually require larger and larger supplementary insurance policies to those individuals who do not care for themselves. Both individual and institutional responsibilities to reducing health care needs will contribute to reduction of costs. Government will gradually press cost reduction as well.
Collectively we have to come closer to balance by increasing revenues and decreasing expenditures. Spending some money in a responsible way to improving infrastructure is cost effective in two ways. First, we provide relatively long-term employment to large numbers of individuals who will increase the tax rolls and thus total revenue increases. Second, by reducing long term rising maintenance and replacement costs of existing infrastructure, we gain in the present against rising future expenses.
Modest but continuing reductions in defense and entitlement costs can be achieved without massive loss of jobs in the defense and healthcare sectors. Massive reductions of subsidies can be disruptive but a slow steady reduction can provide the time necessary for those industries that are subsidized to adjust.