At first, I believed the government needed to get heavily involved with their role in the US economy. And right now, I still think they should get a little handsy. It's an unfortunate reality, that in order for us to even break even, we need an overhaul, a change in how the government brings in revenue. I still strongly believe that there needs to be taxes for everyone, that everyone who has an income needs to pay a certain percentage of taxes. I think spending has to be moderated heavily. We have to look at our budget realistically. We can't be spending $10 on something that could be bought at $8 and expect our big brothers (China) to lend us the extra $2 as a loan. It just can't work that way. Especially if we're buying, lets say, tons of candy with our grocery money and not getting everything that was originally on our list. We're spending too much on things we don't necessarily need right now.
I know that social security and medicare is racking up a lot of our debt because the baby boomer generation is retiring, and since they are retiring, right now is when we really need to start collecting more taxes. And slowly, the government can decrease the rate of taxation so we don't theoretically milk the cow dry. I also don't think that the government should be doing any major bailouts right now, we can't afford it, and if a business can't survive right now then how will it survive later? If we cut the corporate tax and find another way to tax the country (addressed in part III) then perhaps more businesses will return so the effect of jobs lost from companies that go under will be relatively small.
Part II. The Federal Budget
Looking at the given pie charts on revenues and expenditures, it appears that social security brings in 36% of the revenue, but the government only spends 20% of their money on social security. Perhaps, going out on a limb here, 20% of the revenue collected is going back to social security, while the other 16% is going to medicare, and the income taxes make up the other 9%. That leaves 38% from the income taxes, and 17% from other revenues. We spent over $1,295 billion from what we could afford to spend in 2011Seeing that discretionary spending makes up 18, just 2% lower than social security and 5% lower than medicare, it's quite obvious that there needs to be some cuts happening. Like I said above in the part I, this country's spending habits need to be addressed as well as taxing to bring in more revenue.
I disagree that energy has been put so low on the totem pole in discretionary spending. We could definitely cut a lot of spending on international assistance. I think it's important that we handle domestic issues before we handle any international issues, and the economy is obviously a huge domestic issue. Also I think we need to cut Defense spending by perhaps, 5%, pull out of a good portion of our international bases, like Germany (I'm pretty sure the Nazis are all gone) and other ally countries. If this happens we can cut the Veterans Affairs discretionary spending by a lot, considering we would be cutting the amount of people in the military. In summary, we need to adjust where our revenue, by bringing in more income tax, we need to cut spending, and change our view points on what we should put our money towards more.
Part III. Personal Taxation: Select one of the personal tax plans we've studied and create a persuasive argument for it. Explain why you can support this tax. Add any details of how the tax would function, or any reforms you'd like to see made.
I believe the best form of taxation right now would be a VAT tax. The VAT tax is a tax that is placed on a product whenever value is added at a stage of production and at its final sale. So in a sense, at each stage the company of said product or the company that is adding onto or changing said product pays a tax. Eventually, they are reimbursed this tax. You could say it acts as a stimulus for the companies. This tax is also much more flexible than the flat or national sales tax. As an example, most of Europe partakes in the VAT tax and their tax fraud is at 13% while the United States is at a very high 40%.
I would propose that the VAT replace the corporate tax. This would hopefully bring companies back to the states that are trying to escape this taxation and bring in more jobs. The VAT would be set at a rate between 15-25%. We would revert to the old income tax brackets at 3,4, and 5%. There would be tax breaks on groceries (unprepared food) and medicine. Now, some people may think the wealthy will benefit due to the low income tax, while the lower class will take a heavy blow because ultimately the consumer is the one who bares the biggest burden. But, as far as the wealthy goes, the things they want and are capable of buying are now much more expensive, for example, a car. It's going to cost a lot more for them to buy than it did without the VAT. As for the lower class, they will have slightly more money because of the lowered income tax, and there are tax breaks on things they need in order to survive. They will just have to keep the skills or learn how to prioritize their spending. This tax ultimately promotes wise spending, savings and investments. I don't think this will revert to lesser spending though, because of the taxes, people ultimately will have to buy clothes, supplies for school or jobs, etc., that the spending done then will balance perhaps the lessened spending in the economy. Also, this would not be a hidden tax, it will be on the price tags of the products to show exactly what percent of this product is taxed and ultimately the final purchase price.
Part IV. The National Debt Crisis: What is your solution to the debt crisis our nation is in and how does this fit into your manifesto? Supplementary information is also on today's Maccanomics blog.
Well, I'd have to say that if we stop using the progressive tax, because it's quite clear that it's not working, and apply my proposed theory of the VAT tax, as well as change our priorities as far as spending goes, perhaps we can finally break even at some point in the near future. I honestly think that what it really comes down to is collecting more revenue, because as of right now 47% of Americans don't pay taxes, and to cut back on spending and change what we spend our money on.
Now this breakdown was assessed quite sometime ago, as the national debt was only $14.3 trillion. But I think the main point of this shocking assessment of our nation's debt still remains. And that is that we are spending too much, not cutting enough, and not taking nearly enough revenue in order to spend the way we do. This goes along with my manifesto, in that the government has to see past the lobbyists, the selfish desires, and get down to the fact that there are things that we want, there are things that we need, and if we want to pay for a balance of what we need and what we want, we have to tackle this balance and collect the appropriate revenue to spend on our wants and needs. Revenue, is obviously, raising the taxes, and possibly using my proposal for what I believe is the right form of taxation, cutting spending and prioritizing our needs, as said in my manifesto, and keep this habit going. Even after we get out of this debt, and to stick with this plan. Because this debt is going to take sometime to fix.
Part V. EXTRA CREDIT:
- approximately two thirds of the federal budget consists of mandatory spending (spending authorized by law that continues without the need for annual approvals of Congress) - interest payments, Social Security and medicare
- one third remaining of the budget is the discretionary spending
- the federal budget is prepared for a fiscal year (12 month financial planning period that may or may not coincide with the calendar year)
- first step on developing budget is executive formulation (the president establishes the general budget guidelines for a multiyear period)
- by law, the federal budget must be sent to both houses of Congress by the first Monday in February
- The president's budget is only a request to Congress, they have the power to approve, modify or disapprove of the proposed budget
- House sets initial budget targets for discretionary spending
- Once those are set, the House assigns appropriations bills to various House sub-committees, breaking down the budget into 13 smaller ones
- Appropriations bill is an act of Congress that allows federal agencies to spend money for specific purposes.
- The deadline for completing this part of the process is September 15
- The Senate receives the budget after the House approves it. The Senate may approve the bill as sent by the house or draft its own version
- Both House and Senate seek advice from several government bureaus and offices
- the House and the Senate approve the compromise bill and then send it to the president for signature
- The president can veto the bill and force Congress to come up with a budget closer to the president's original version
- The budget become official document once signed by the president for next fiscal year that starts on October 1
- The largest category of federal spending is on Social Security
- it is mandatory though
