StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Needed: An Elvis Presley Budget Process

04 May 2010
Posted by Stan Collender

My column from today's Roll Call (subscription needed) says we've had enough set-up for a deficit reduction package.

What’s Needed on Deficit: Less Talk, More Action

May 4, 2010

You might be familiar with the song because you’re old enough to remember when it hit the charts in the late 1960s or because over the past few years you watched the NBC television show “Las Vegas,” which used it as a theme. Either way, Elvis Presley’s “A Little Less Conversation” was an upbeat plea for less talk and more action.

And that makes the song, which asks for “A little more bite and a little less bark/ A little less fight and a little more spark,” the perfect anthem for the ongoing debate about the federal budget deficit.

Take last week’s talk fests about the deficit. The National Commission on Fiscal Responsibility and Reform, the group formed by the president after seven Republican co-sponsors voted against and, therefore, killed the legislation that would have created a Congressional deficit reduction commission, held its first public meeting Tuesday. During the meeting much of what is already known about the budget problem was simply repeated. As far as I can tell, little was said that was new or moved the needle. The following day, an all-star cast of mostly former federal economic and budget policymakers spoke at what was dubbed a “fiscal summit” by the Peter G. Peterson Foundation, which convened the meeting to begin what it said would be a “national bipartisan dialogue” about the deficit. That will be followed by what is being called a national town meeting on June 26 that will link discussions on the deficit that will be held simultaneously in 20 cities.

It’s not clear that any of this talk is going to accomplish much. As much as I fervently hope the commission will be able to come up with deficit reduction plan that, as required, will be supported by 14 of its 18 members, it’s not at all clear that the environment has changed to the point where it will be possible for that to happen. The summit was more preaching to the deficit- reduction choir than to the unwashed and seemed to have little, if any, actual effect on budget politics. There’s also little indication that the national town hall meeting will be able to move people away from their so-far-fixed-in-cement position that the deficit should be reduced but spending shouldn’t be cut and taxes shouldn’t be increased to do it.

As the song says, “All this aggravation ain’t satisfactioning me.”

In fact, we’ve already had plenty (or should I say enough?) talk. For more than two decades, the Committee for a Responsible Federal Budget has conducted its “Exercise in Hard Choices” around the country to explain what it will take to deal with the budget deficit. Similarly, the Concord Coalition has crisscrossed the country with its “Fiscal Wake-Up Tour” that included Democrats, Republicans, liberals and conservatives who, while not always agreeing on what should be done, talked about the problem and the alternatives. Many public officials have made reducing the deficit their mission in life and have talked about it incessantly. And over the years there have been so many Congressional debates, diatribes and discussions about the deficit that dealing with the issue today often seems like a scene from the movie “Groundhog Day.”

All of this has been based on the notion that educating voters in advance of a solution being offered not only will make them more willing to support a deficit reduction plan, but will also make it more likely that legislators will actually have the courage to come up with something. But after decades of talking, a third-party candidate for president in 1992 who used the issue of reducing the deficit to legitimize his candidacy and some of the biggest names in economics and policymaking warning Chicken Little-style to anyone who’ll listen about the dire consequences of not reducing the deficit, there’s less ability to do something about the situation now than there has ever been. Talking about the problem in general simply hasn’t had the desired result.

So let’s move on. What the deficit reduction debate needs now is a specific plan that the gurus who spoke to the commission and at the summit enthusiastically rally behind. Rather than do what they have been doing — supporting the process by which they will be considered — the economic and budget policymakers who participated in these meetings will have a far more positive effect if they can explain why specific spending cuts and revenue increases are needed and should be adopted.

This is hardly unprecedented: Three of the most respected policymakers of their time — Alexander Hamilton, James Madison and John Jay — wrote the Federalist Papers only after the Constitution, the proposed solution to a much earlier intractable economic issue, was drafted. Even in that era’s vastly different communications environment, overeducating voters in advance of the proposed solution would likely have resulted in hardened positions and made ratification more rather than less difficult.

So no matter how much it’s counter to what seems necessary, substituting action for talk on reducing the deficit now might well be the best way to actually make something happen.

Stan has left the building.

I'm just happy that the

I'm just happy that the current policymakers had the courage to run up today's huge deficit in order to strengthen the economy and save untold numbers of jobs in the process. We should all be thankful. The current deficit is on pace to be halved in the next few years and we can address the major problem of the remaining future deficits - health care inflation.

btw, it's worth noting that the 1992 presidential candidate who defeated the deficit hawk was successful in eliminating the deficit.

Tell the truth, all of it.

"...after seven Republican co-sponsors voted against and, therefore, killed the legislation that would have created a Congressional deficit reduction commission..."

What about the 22 Democrats that voted against it??? Were any of those 22 votes part of defeating it?

Read the whole sentence before you go hyper-partisan

None of the 22 Democrats were co-sponsors.


You narrowly tailored your sentence to take your obligatory shot at Republicans...and I'm hyper partisan? Further , their switch "therefore" killed the commission. I don't think so. they joined others (including 22 Dems), in particularly crass fashion I grant you, to kill it. That's why you should just tell the whole story, rather than just the side you want to tell, which seems to be anything that makes Republicans look bad.

Getting specific

My contribution to the getting specific discussion.

1. End the Bush and Obama tax cuts (all of them) and require a minimal contribution to Federal taxes (think 50 to 100 dollars).

2. Cut military spending from the CBO baseline by $100 billion

3. End all industry specific preferences in the tax code (we're not in the industrial policy business)

4. Means test all transfer payments...nobody with a net worth above $500,000 need apply for money from their fellow citizens.

5. Nominally freeze the balance of the budget (not line item but in total) until the budget is balanced.

5 years and no more problem.

Sure everyone will hate it but it gets the job done and, the fact that everyone hates it is a good thing.

Actually 5 years and a big

Actually 5 years and a big problem. Millions of senior citizens getting inadequate health care.

Why is that? Those median

Why is that? Those median net worth of all senior citizens is $200,000. The median for the top quintile is $500,000. Why should a senior with a net worth of $500,000 take money from the average worker (median net worth, $70,000)?

I'm not saying they shouldn't have health care, I'm saying that as long as they have lots of wealth, they should buy it instead of having their fellow citizens buy it for them.

So what's your specific counterproposal?

1) I'd like to know where

1) I'd like to know where your stats come from
2) Assuming they're correct, I imagine the bulk of that net worth is from a primary residence. Therefore your plan has just thrown millions of senior citizens out of their homes. Not to mention that after paying for their own health care costs for awhile millions are now poorer and back on Medicare. You have balanced the budget at the expense of the poverty of our seniors.
3) My proposal is two create a public option for health care that will help keep costs down by allowing the govt to negotiate lower prices and also to raise taxes on the wealthy. Specifically dividend and capital gains taxes, which will have the added benefit of reducing the asset bubbles that have been such a problem in the last decade.

Where do yours come from

My stats are from the CBO. That's where all the analysis comes from.

As to your point 2. Help me understand your objection. Let's say that most of the wealth is a home. Today, the senior has subsidized health care and then leaves the home to his or her heirs who then sell the home generally because they have their own home so the home gets sold anyway. As to your second objection, sure people, having used their own wealth end up back on Medicare but that's cheaper than them being there in the first place. Please recognize that all the current system does is subsidize intergenerational wealth transfer which I don't know why you are so prone to defend.

As to your proposal, it is entirely nonspecific and so difficult to assess whether it would do the job. But let me be charitable and try. Dividend and capital gains taxes? How high would you like to raise them. Currently, they stand at 15% and the President has them going to 20% in his budget.

In 2004, the cap gains tax raised about $50 billion at that 15% number. Let's take the President's own number (quoted here that raising the tax from 15% to 20% for "the rich" would raise $5.4 billion. Against a deficit of $1 trillion, I suspect you can raise that rate as high as you would like without having much effect, other than on investment.

So the bulk of the savings in your proposal would have to come from paying less for health care services by establishment of a government monopoly in health care. Of course, this can only be accomplished in one of two less for goods and services or have people consume less health care. By your comments, I assume you are focused on the first. Your proposal therefore is price controls on the provision of health care services as a solution to the budget crisis. In saying this, you surely must recognize that in the short term, the government is going to pay a lot more for healthcare than it does today since under your plan everyone will be covered rather than just seniors and the poor. This means that taxes will have to go up to fund the increase in health care expenditures and your tax on cap gains and dividends is unlikely to fill the bill on that front.

Let's do a thought experiment. Let's assume that today the government spends about 40% of the nations healthcare costs. The average cost per insured is about $10,000 per person in Medicare and $14,000 in Medicaid. If the government insured the other 60% (or roughly 200 million people), that would cost another $2 trillion at current Medicare rates. To spend less under your plan, the government would have to cut spending by 2/3rd from the current level. Spending less per person is not the same as spending less.

If I might be so bold as to suggest running the numbers before proposing your next specific alternative, it might lead to a better discussion.

Oh and PS, you never did answer the question about why people with less wealth should give money to people with more wealth. Given your overall comment, you might think that's something you would oppose.

Just an amendment

The data on net worth comes from the Federal Reserve and the Bureau of Labor Statistics.

Responding somewhat in

Responding somewhat in order:
1 - My objection is to forcing seniors out of their homes while they are living, which you ignored focusing on the future inheritance of the home.

2 - I think dividend and capital gains should be treated the same as other income. I'm not sure why physical labor gets a penalty.

3 - I believe a public option would do a better job of reducing the rate of health care cost increases than insurance companies do. I'm talking about something larger in scale than what the House Dems proposed. Something like allowing all citizens to buy into Medicare. It wouldn't require a tax increase because Medicare would receive my health insurance premiums instead of the insurance company. If all health care were as efficient as Medicare and Medicare were allowed to negotiate prices I think you would see substantial savings. The rest of your assumptions about my proposal are incorrect.

4 - Social Security and Medicare are social safety nets in which all workers pay in and all workers receive benefits regardless of their current level of wealth. I don't have a problem with that.

In order

1. We're not forcing them from their homes. They may need to leave their homes and they may have to try a reverse mortgage. Why is the presumption on your part that their living expenses should be paid by someone else so they can pass their homes on to their heirs? How does that serve society's interest.

2. My point was it doesn't matter. There isn't enough dividend and cap gains income to make the tax matter. I don't care what you do with it, it's immaterial in the context of the overall budget, particularly if you limit it to "the rich".

3. If Medicare receives your health insurance premiums, that's a tax increase or a pay cut. You could look at it either way. It's actually a fairly massive tax increase, maybe the most massive ever in the history of the country. Furthermore, paying less for services is just paying less to doctors and nurses primarily because health care is largely a service industry. If that's what you want to do, be honest about it. How much less do you want to pay them? Do you know what it would take to wipe out the deficit with your plan or is it just conceptual.

4. Social Security and Medicare are transfer payments. They take money from people who earn it today and pay it other other people today. They are not pension programs. There is no account in your name nor is there any binding agreement on the benefits you will receive in the future. I don't have a problem with either program in concept but giving money to people who don't need it in a time when we don't have enough money seems entirely wasteful.

I still have yet to see any numbers in your proposals so it's actually quite difficult to know if they would address the problem. I'm fairly confident however that unless you are in favor of massive cuts in payments to health care providers and massive tax increases (regardless of what you call them), your plan cannot work. Further, unlike my plan, it maintains the fiction that we, as a society can just keep providing benefits regardless of need.

Finally, since your plan falls almost entirely on one segment of society to finance, it doesn't produce shared pain and is therefore unsustainable.

I really wish you'd give some numbers and explain why taking from the poor and giving to the rich is a good idea but I guess that's too much to hope for.


Regarding #3 - There's a

Regarding #3 - There's a reason the CBO scored the Health Care Reform with a public option as better for the budget than without. There are massive savings there, and the House just skimmed the surface of those savings, but you continue to ignore that point. Call it a tax, call it a premium, who cares? No net change to my wallet and isn't that the point, rather than insisting on using scare tactic words like "tax".

Regarding #4 - semantics. The point is the government makes a committment to everybody. Shared sacrifice and shared benefit.

The 2014 budget deficit is projected to be only 4.1% of GDP. We don't have as far to go as you seem to think. It goes up from there but there's no need to panic and force seniors out of their homes.

Good luck with success at the polls on gutting Medicare.

You're kidding right

2014 is the lowest number in the decade and 4.1% is higher than almost any time in the history of the country.

Public option is quite different than single payor. The public option difference is trivial according to the CBO within the overall context of the problem so that's not going to do it.

It's not no net change to your wallet. The money the company pays you is yours. Sure some if it goes to buy you health care and it would be better if all of that money went to you and you bought your own health care. But remember that not everyone has the same health care so there's no good way to administer your tax.

I wish you luck with the ridiculous budget deficit you're going to keep because you're unwilling to stop transferring funds to rich people simply because they are old.

The CBO scored a very limited

The CBO scored a very limited public option. One which I wouldn't be eligible for because I already have employer insurance. I'm talking about something completely different and grander, as I've already noted.

And it is no net change to my wallet insofar as I can buy private insurance or buy into Medicare (or something similar). I'm not sure why these simple concepts are hard for you to understand. Personally, I don't think private insurance can compete with Medicare and the market would speak in droves if competition were allowed.

All we need to do to balance the budget longterm is to decrease health care inflation. My plan would work.

Articles of Faith

If you take it as an article of faith that HC inflation can be lowered with no negative consequences by means of a government takeover of the system, there's very little I can say.

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