FBB Part 2: Taxes

Part 2 of the 'Bank Slate Federal Budget Blueprint series. The goal of this series is to make realistic recommendations that would allow the US to balance in the budget within 10 years. The basic tenants of the the 'Bank Slate Federal Budget Blueprint are:

• The year 2000 should be used as a policy baseline. Tax and spending policies should be reset to the levels and rates they had in 2000.
• Any policies enacted since 2000, that we wish to keep, need to be funded.

Politicians and the good citizens they represent always think taxes should be lower. If times are bad, or maybe they aren't so bad, but we want them to be better-- we can stimulate the economy by cutting taxes. And if times are good and there's a budget surplus-- well then that's not the government's money. That's your money! You should get it back.

For Republicans there is no problem that can't be solved by cutting taxes. Even today they all promise to "cut taxes and reduce the deficit". There is no political cost to uttering this nonsense.

Even the Democrats have gotten in on the act. Clinton and Obama both realized that calls for spending increases will be met with protest. But everyone likes a targeted "tax credit". These are much easier to pass even if the result is pretty much the same.

 Nobody like taxes. I don't like taxes. I don't like paying my credit card bills either. But if you're going to spend the money you've got to get it from somewhere. Somewhere means income or debt. Conservatives say they don't like the government spending all this money. But their commitment to tax cuts is not matched by a commitment to spending cuts.

After a decade of tax cuts for all seasons, we're looking at a $1.56 trillion 1 year budget deficit. There is no party willing to enact tax hikes. And there are no Americans who are going to demand it.

Fortunately, there is a simple solution. In fact, it's the simplest of all possible solutions. Congress should do nothing at all.

In their wisdom, the Bush Administration and its congressional supporters, scheduled all of the Bust tax cuts to expire this year. At the end of 2010 all the Bush tax cuts -- income, capital gains, estate etc.. are scheduled to reset to their 2000 level. Obama's tax cuts are also scheduled to expire in a year or two. Obama has suggested that congress should extend some of the tax cuts that go to "working families". Congress should not do this. The projected deficit is $1.56 trillion. We can't afford the tax cuts. Not even the ones that go to me.

The other tax that congress should to nothing about is the AMT. The AMT (Alternative Minimum Tax) was enacted in 1969 and designed to make sure Americans with high incomes couldn't hide all of it in tax shelters. The problem with the AMT is that it didn't account for wage growth over time. What was considered "high income" in 1969 counts is considered to be "middle-class" today-- although we still mostly talking about couples with income over $200k.

Every few years congress "fixes" the AMT by bumping up the level where it goes into effect. But the AMT is a simple, progressive tax system. So, we should leave it alone, even if I end up paying it some day.

Raising taxes is always a bitter pill to swallow. But reverting to year 2000 tax policy will be much less nasty than ongoing $1.56 trillion dollar deficits. And all congress has to do is nothing at all.

Bank Slate Federal Budget Blueprint

One of the many reasons to condemn the Bush administration is its record of fiscal irresponsibility. In the final year of the Clinton presidency we had a 236 billion dollar budget surplus. At the end of the Bush administration, after a few unfunded entitlements, massive tax cuts and 7 years of warfare, the days of surplus were long gone. In 2008 the budget deficit was 454 billion dollars. The Bush record was one of constant tax cuts and spending increases. The result was predictable. He even oversaw the disintegration of our financial system left a pending depression as little parting gift.

Obama inherited a budget awash in red ink and an economy on the brink of collapse. He responded by cutting taxes and increasing spending. A lot. Well respected Keynesian-economic orthodoxy says this was the exactly right thing to do under the circumstances. Facing an economic crisis, the government should borrow a lot and spend a lot to get the economy moving again. The debt is worth incurring if it gets people working and prevents stagnation. And the theory worked. Sort of. The economy and unemployment stabilized. It's bad but it could have been worse. Much worse.

Stability came at a great cost. The 2009 budget deficit was a jaw-dropping 1.35 trillion dollars. In the first year of the Obama administration the government ran up 1 year deficit that was three-times that of the worst Bush budget. Still, it was a crisis. Now the worst has passed. Obama has been in office for a year. Earlier this month he unveiled his own budget plan. The Obama budget for 2010 projects....

... a 1.56 trillion dollar deficit.

In 2010 we'll see more tax cuts and more spending. Naturally, the Republican party finds these runaway deficits to be completely intolerable. If they were in charge they would... um... cut taxes even more!

We have a big problem.

With a total federal debt over $12 trillion it won't take many years of trillion plus deficits before this country is in big trouble. In the long term runaway spending will be ruinous. But in the short term cutting taxes and increasing spending is always popular. Cutting spending and raising taxes is political suicide. Especially with a battered economy and unemployment over 10% -- any party that calls for belt tightening will get run out of town.

What to do?

Here is my solution. There are some relatively simple measures we can take that should be politically palatable, would put us on a sustainable path to a balanced budget, and are vastly preferable to national bankruptcy.

I'll dive into some specifics in future posts. But the basics are pretty simple. Remember the year 2000 when we had a surplus of $236 billion? That wasn't so long ago. Were you crushed by the weight of over-taxation in 2000? Did you find the federal government of 2000 to be overly stingy with the public purse? 2000 was an Ok year, right?

The Bank Slate Federal Budget Blueprint:

• The year 2000 should be used as a policy baseline. Tax and spending policies should be reset to the levels and rates they had in 2000.
• Any policies enacted since 2000, that we wish to keep, need to be funded.

A lot has changed since 2000. Not enough had happened to justify perpetual trillion dollar deficits. But there have been changes. As the Bank Slate Federal Budget Blueprint series continues I'll dive into the big-ticket changes and how we can bring them back a sensible baseline. Specifically, I'll look at:

• Taxes
• Military Spending
• Health Care

Stay tuned...

Do Vampires Believe in the Supernatural?

Recently, I was writing a fiction piece for the Vampire CCG Storyline. In the story there is, naturally, a dark and twisted conspiracy of unspeakable evil that goes all the way back to the Garden of Eden. And I wanted to depict a character, a vampire by the name of Angelo, as a skeptic. I wanted Angelo to be someone who didn't believe in this mythical mumbo-jumbo. But this got me thinking. If someone is essentially supernatural wouldn't that influence their views of the supernatural? Wouldn't an undead vampire have to believe in God or magic or something?

Suppose an individual possesses superhuman strength or has the ability to transform into a bat. They would be well aware the existence of forces beyond their ken. There must be something in his world that allows Angelo to merge with his fellow Blood Brothers into a coagulated entity -one monstrous heap of undead flesh. Is that force necessarily divine? What else could it be?

What about us? I can't borrow the limbs of my brothers and use them to smite my enemies. My powers are much more mundane. I can ponder vampiric epistemology while folding laundry. Still, the hows and whys of what makes this feat possible are beyond my understanding.

In his wonderful book "A Short History of Nearly Everything" Bill Bryson tries to describe a single living cell.

"The cell has been compared to many things, from "a complex chemical refinery" (by the physicist James Tefil) to "a vast, teeming metropolis" (the biochemist Guy Brown). A cell is both of those things and neither. It is a like a refinery in that it is devoted to chemical activity on a grand scale, and like a metropolis in that it is crowded and busy and filled with interactions that seem confused and random but clearly have some system to them. But it is a much more nightmarish place than any city or factory that you have ever seen. To begin with there is no up or down inside the cell (gravity doesn't meaningfully apply at the cellular scale), and not an atom's with of space is unused. There is activity everywhere and a ceaseless thrum of electrical energy."

I can't spontaneously grow limbs. But if I cut my finger, I do expect the trillions of cellular nightmare-cities that comprise me to recognize the trauma and coordinate the reconstruction effort. And I expect them to get this done while they flawlessly carry on with the pumping of my blood, the digestion of my food, moving of my limbs and every other task involved with the business of being me.

The composition and coordination of cells may be mind-blowingly complex. But at least here we have physicists and biochemists who can observe what's going on and offer explanations. We can't really understand the explanations, but we we're happy to know they are out there. If we step up to the big question of what makes us us we don't even get that. Nobody has a good explanation for human consciousness. And nobody seems to be on the verge of finding one. It just is.

I have no idea how we manage to do what we do. The more I learn about it the more absurd and impossible it all seems. And yet, we exist. Therefore there must be some set of circumstances that make this possible.

So, maybe we're not so different from dear Angelo.