THE BLOG
12/03/2012 07:29 pm ET Updated Feb 02, 2013

Let's Balance the Federal Budget Now

One of the goals of the Republican party since 1935 has been to kill Social Security. Since 1965, they have also wanted to kill off Medicare. The faux and GOP-created "Fiscal Cliff" crisis was largely created by those opponents as a means to partially accomplish those two goals.

Unfortunately, President Obama has been lured into a political discussion on balancing the federal budget largely framed by the GOP as a combination of cutting tax breaks to raise revenues and cutting so-called "entitlements" to reduce federal expenditures. In response, the president has focused on tax increases for those making more than $250,000 annually and is quietly negotiating cuts in these two key elements of the national social net.

Missing in this conversation is the fact that Social Security and Medicare are insurance programs into which all workers have made regulator contributions for decades -- they are not entitlements. Workers have paid for the benefits they receive. Also missing is the fact that both Social Security and Medicare have large paid in surpluses that along with regular and present contribution levels guarantee the solvency of the Social Security System for more than 20 years and Medicare for another 12 years. In sum, these programs are not the source of the fiscal crisis.

The source of that crisis are the Bush tax cuts of 2001, which cut federal revenues sharply, military spending which increased by 180 plus percent in constant dollars between FY 2000 and 2010, and massive tax breaks for various special interests.

If Congress and the president were not beholden to various special interests, the budget could be balanced in three easy steps.

First, military spending needs to be cut. The Cold War with the Soviet Union ended more than two decades ago and the Mideast Wars are nearly over. While the U.S. is now spending almost $700 billion annually (constant dollar terms) on defense -- a $300 billion increase over defense spending in 2000 -- major cutbacks to levels of a decade ago would both keep U.S. defenses strong and provide almost $300 billion annually for deficit reduction.

Second, the existing and corrupt federal corporate income tax needs to be repealed and replaced with a consumption tax. A consumption tax can be made equitable with exemptions or reduced rates for food, clothing, housing and medicines. The advantages of such a tax is that it eliminates special interest loopholes, is easy to administer, is difficult to game and cheat, promotes exports and new job creation, and provides vast amounts of loophole free revenues. If the U.S. had the consumption tax system used by 151 other nations and only a 7 percent rate, it would have had more than $800 billion of revenues in 2011 versus the less than $200 billion produced by the present loophole-ridden, 35-percent-rate corporate income tax. The $600 billion of additional revenue would be a major contributor to deficit reduction.

Finally, the president's proposal to keep the Bush tax rates for all persons making less than $250,000 annually and apply the Clinton tax rates for all those making $250,000 or more would produce additional annual revenues of roughly $70 billion.

Together, reduced military expenditures, the replacement of corporate income taxes with a consumption tax, and the president's targeted tax increase would create almost $1 trillion of additional new revenues and with that balance the federal budget instantly -- not 20 years from now as proposed by both the president and the Republican House leadership.

The present discussions shift most of the fiscal burden to the middle class and maintain needless defense expenditures and tax breaks for special interests.

Hopefully, the president will remember that it was the middle class that brought him to office two times in the expectation that he would do them no harm.