Monday, April 16, 2012

The Federal Budget

One thing I continually hear on the news is that Obama and the Democrats have no plan for a budget because they haven’t passed a budget though the Democratically controlled Senate for almost three years when the Republicans have passed Paul Ryan’s plan in the Republican controlled House and try to demand that the Senate should also pass this budget. This argument on the surface seems to make sense but in this political climate there’s no upside to the Dems passing a Budget in the Senate when they know it will be crushed in the House. The Dems don’t want to pass a radically left leaning budget just to have it crushed in the House and they don’t want to pass a compromised moderate budget without the help of the Republicans creating it because the Republicans seem to have a strategy of forcing the Democrats to start from a compromised moderate position and then still calling that compromised position “radically left.” Then the national debate on any issue becomes the far right verses the a moderate centrist position and the Republicans still seem to hold a hardline without compromising from that position and many of the conservative commentators as well as politicians themselves use harsh rhetoric against these moderate positions calling them “Communists” or “Socialists” no matter how moderate the positions are. It seems to just be a tact used against anything that Obama and the Dems say no matter if the positions are actually moderate or if they were even Republican positions five, ten, or fifteen years ago.

Paul Ryan and the Republicans have purposed a plan that dramatically cuts spending while at the same time cuts taxes. Getting into the specifics of how it cuts spending in places that we can’t afford to cut, and cuts taxes disproportionally to individuals and companies who don’t need the cuts is not even needed at this point. We can look at how the basic concept of this plan is nowhere near a compromise while most American want the congress to find a compromise to our budget problems.

Most people agree that some difficult cuts will need to be made because 40% of our federal spending is currently borrowed but it seems obvious we can’t just close that gap with all cuts to out spending. And it seems more obvious that tax cuts actually add to the deficit unless you subscribe to the idea that tax cuts will always create jobs fast enough to bring workers back into the workforce now paying income tax and stimulating economic activity that would actually bring in more tax revenue then the initial tax cuts take away. Then as we look over what difficult cuts may need to be made to our budget because of wasteful spending and because of programs that do not give society as much benefit as initially expected we also need to look at how some new investments in our economy will help our economy grow and we can actually get a return on our investments. The idea is that when we invest in infrastructure like roads and bridges, as well as teachers, police, firefighters, and so on and so on, there will be more people with jobs and therefore more money in the economy. These people will then spend more money creating even more jobs. This is called a multiplier effect and works best from the bottom up because people in the lower and middle classes spend a much larger percentage of their income therefore stimulating the economy much faster while many tax cuts for wealthier people do not flow though the economy very fast because that money will be more likely to sit in a bank or investment that does not stimulate the economy as fast as increasing the disposable incomes of lower and middle class people. The Government helps stimulate the economy by investing in jobs and more jobs will be created as a consequence of people having more money, then the government will actually get a return on their investment because more people will be paying taxes and less people will be using entitlement programs. This coupled with a low tax rate for the middle and lower classes help the economy grow at a rate where we can add new tax revenues just from people going back to work and paying their income taxes. The idea that the wealthiest people should pay a high income tax rate helps even the wealthy. Since they can afford to help make an investment in our society they will benefit from a better economy. All sectors of society can grow when we make the right investments in society like we saw in the 1990s.

(And on a side note while the wealthiest people in America do pay a higher percent on their income taxes they actually pay less on their payroll taxes and most of the other ways that taxes are collected are either a flat tax or a flat fee that are more beneficial to you the wealthier you are)

Now back to the point, Obama and the Democrats can’t pass a budget.

Well, there’s no upside to the Democrats passing a budget in the Senate when they know the House will just reject it. If they pass a budget that is very progressive and invests in our country while taxes the wealthiest people a little more Republicans will just call it “Communism” and say that Obama and the Democrats were never willing to work with the Republicans to reach a compromise on what’s best for our country. But if they purpose a very moderate plan that does very little to invest in our country and actually makes the difficult cuts to programs that Obama seems to be willing to do they will get torn apart from both side. The Liberals will be mad that the Democrat aren’t willing to fight for them and the Republicans will either call the moderate plan a “far left communist style budget” or they will say it’s a good start but we need to compromise from that point and they will move the new moderate budget much closer to the Ryan Budget before they would think about passing it therefore not truly compromising at all.

In this scenario there is no upside in passing a budget that can’t pass the House and won’t even start the legitimate process of compromise. Obama has seemed to want to sit down with the Republicans and find that compromised budget that everyone wants but they have taken the hardline route of no tax increases, deep spending cuts, and little to no investment in our country. I understand that some of those difficult decisions need to be made but the Republicans have walked out of budget meetings on multiple occasions over the issue of no tax increases when it seems obvious that we need at least some modest targeted tax increases as well as some spending cuts to close the large gap between what we take in and what we spend.

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