12/10/2010 02:09 pm ET Updated May 25, 2011

I'd Love a Tax Break!

I'd love a tax break and pay 35 percent instead of 39 percent on that last dollar of income. Why not? I pay a lot in taxes. And besides, I work hard.

Here's why.

The Federal Government takes in (at current rates), about $2.4 trillion. That is a lot. But we spend roughly $3.5 trillion. But let's look at where it goes and what it would take to balance the budget with current revenues:

Direct payments to Americans
(almost $2 trillion of the 3.5 trillion public expenditures): these include Social Security, Medicare, and Medicaid, Unemployment insurance, etc.

  • Make permanent and immediate cuts by 33%. One third off of all Medicare, Medicaid, and Social Security payments. Doctors will scream bloody murder that they can't do business. Grandma can get by with one-third less (though the AARP will scream that it is Armageddon and where are all those doctors going to take their business, Afghanistan? Eliminate ALL unemployment benefits (but continue to collect unemployment taxes).
Defense ($663 Billion)
  • Cut all defense spending immediately and permanently by 75%. We'd still have the most fearsome military on the face of the earth (we currently spend as much as every other nation on earth -- most of whom are our allies) and the most fearsome military in the history of mankind (except for the one we just dismantled), but we would find it difficult to launch new wars. But imagine the howls from the Right that we are leaving ourselves defenseless?
These are the order of magnitude of spending cuts required to balance the budget with current revenues. But neither of these things will happen. How do I know? Let's look at two facts. First, let's examine what the President has proposed to do with these two particular items.
  • 1. Social Security. This benefit is indexed to inflation so people on Social Security get an automatic increase every time inflation goes up, so even if millions of working people lose their jobs or incur increased costs, our retirees will be 100% protected. But, we have had ZERO inflation in the last two years, so what does Congress do? It votes to give Social Security recipients a cash BONUS because the lack of measurable inflation has kept recipients from getting the annual increase to which they have become accustomed.
  • 2. Defense. What economies has the President proposed here? He proposed a 13.7% INCREASE in the defense budget. Nuff said: he doesn't want the Republicans to say he is "soft on defense". And if this is the increase proposed by a Democrat (you know, soft on defense and all that) can you imagine how big an INCREASE would be proposed if an actual Republican controlled the White House?
  • And what does the apparent deal between the Republicans in Congress and the President entail? On the one hand, the President gives in on the tax cut for the wealthy (less revenue). What does he get? An extension of unemployment payments (increased spending) and some payroll tax cuts (again, less revenue). And our grandchildren get an extra trillion in debt to pay off. There is a common thread here: no current elected official in Washington of either party has shown any seriousness about addressing the deficit. Though one must admit, the Republicans are a lot better at pretending they care about it than are the Democrats.

    But what about all that other government? You know, the waste?

    There is lots of that to be sure: we can all point to examples. But I wonder if we could develop any consensus on what they are.

    But here's the real point. The entire rest of the federal government is only $705 billion. If we closed down the entire remainder of the federal government, it would only amount to a little over half of the current deficit. No Homeland Security. No FBI (or any other federal law enforcement). No Federal Prisons. No benefits for Veterans (that's different from Defense). No Health and Human Services. No federally funded education (half of our universities and a lot of our schools would be shut down), no science support, no meat inspection (or public health protection of any kind) -- an endless list. (Note, the current budget for TARP and the much maligned "stimulus" is ZERO. Any politician who proposes to cut them as a solution is lying. That money is spent).

    So even assuming we could make some cuts in the rest of government, these would have to be huge in order to reduce the cuts (33% of all entitlements and 75% of defense) by more than a little. If you want big cuts, you have to cut big programs. And no one is proposing to do that.

    Imagine a family that buys a new top of the line Mercedes every year, takes expensive vacations, and sends their kids to private schools. And Dad just lost his job and the family's expenses now exceed their income by $200,000 per year. And it decides to "solve" their problem by telling their kid than he can't have that $69 bike he wants from Target. Not going to address the real problem? Yup. But that is exactly what our politicians are doing -- and with our votes, exactly what we have told them we want. Take away our kid's bike, but not the annual Mercedes or the expensive vacations.

    I have listened to hundreds of politicians -- from both parties -- propose "cuts" in government spending, almost always in generic unspecified terms. But I have yet to hear a single one propose spending cuts amounting to more than 1% of our current deficit. Why? The really big programs (defense and entitlements) are the really popular ones -- and no politician ever wants to propose cutting those. They know that they would immediately be voted out of office. So they learn how to say things that sound like they involve serious cuts, but really aren't.

    Until someone proposes dealing with entitlements and defense spending in a serious way, we can either raise taxes or stick our grandchildren with massive life-changing debt. And letting the Bush era tax cuts expire for the top 2% of earners is actually a tiny down payment on the expenditure cuts or tax increases that would be required to bring the budget into any semblance of balance. But to leave these untouched is a clear signal that no one is serious about addressing the deficit.

    What about that growth we will get if we just cut taxes? You know, like under Ronald Reagan? Let's see what the architect of those tax decreases, Regan's budget director David Stockman, said just last Sunday:

    This isn't about growth. This isn't about 'Morning in America in 1980'. This is about solvency. This is about cleaning up the mess the morning after from a 30-year binge that wasn't sustainable."

    "Our recent prosperity was a "debt fueled, easy money bubble"

    Of course, Stockman is a retired politician, so he can afford to speak truthfully. No credible economist believes that tax cuts in the current environment can reduce the deficit. I'd love to believe it what with all the free stuff and all. I'd love to believe in the Easter Bunny, too. But the evidence for either is equally lacking: if we want to spend the money, we have to pay for it.

    (Side Note: While the higher rate that will kicks in on incomes over $250k if the Bush era tax cuts on the wealthy are allowed to expire, the benefits of lower rates on the first $250k of income, no high wage earner will actually pay an increase until their income exceeds something like $300k or $350k. And the tax rate on "small business" (and I am one of those) is already 0% on profits used to hire new employees. Any higher rate only applies to money small businesses take OUT of the business and NOT use on hiring new employees. See earlier Huffington Post article describing this.)

    Both parties are to blame on this one. Democrats have pretended we could sustain increasing benefits without taxing and the Republicans have pretended we could fight multi-trillion dollar wars and keep cutting taxes. And we believed both of them because they told us what we wanted to hear.

    This is not about left vs. right or Republicans vs. Democrats. It is about responsible adults vs. children who believe that everything is free. It's time to grow up.