Arnold Kling  

The Budget Menu

Employment Forecasting... Economists, Bridge, and Nation...

In the essay I referred to in my previous post, I also write

A President who has only added to future entitlement obligations ought to be judged as having acted to increase taxes. To call this Administration a tax cutter is like taking a spoiled kid who does not touch dinner but takes a double portion of chocolate cake for dessert a "good eater."

Brian Riedl suggests some Budget spinach.

It is time to step back and think about the role of government, the obligations of the private sector, and the delineation between federal and state responsibilities.

Riedl then draws up a long list of Budget cuts in discretionary spending. However, he does point out that entitlements are the main course.

Spending cannot be restrained without reforming entitlements, which comprise two-thirds of all federal spending and threaten the country’s long-term finances...[there is] no scenario to balance the budget by 2014 without reducing that 6 percent mandatory spending annual growth rate.

I would point out that we are in 2004. It may not be fair to people now aged 55 and older to reduce their Social Security and Medicare benefits, so it may not be fair to try and balance the budget by 2014 using entitlement cuts. However, by the same token, not reforming Social Security and Medicare for the longer term for those of us under the age of 50 will lead to even worse Budget pressures going forward.

For Discussion. When you examine Riedl's article, which of his spending cuts stand a good chance of being enacted?

Comments and Sharing

COMMENTS (13 to date)
Mcwop writes:

None stand a chance. Bush added a costly drug plan so he has done enough damage on that alone. Kerry has numerous spending proposals, including making the drug benefit more costly than it already is.

Lawrance George Lux writes:

An excellent chance, if certain prepatory legislation is enacted, none if it is not. The approach to Government must change:

1) An Individual Entitlement Budget must be passed, where every Individual gets only a limited amounts of funds per year. All Benefit records must be sent to a central recording office. Programs cancel each other out, so each Individual be paid only a limited amount per year maximum, my Budget limit would be $57,000 (don't criticize, I used the DisneyWorld computer).
2) Each Congressional district apportioned by Population would be also subject of a limited yearly budget of expenditure. My suggestion would be $14 million per 10,000, again do not question my economic models!
3) Government agencies would also find themselves with a set budget, with mandatory lay-offs per individual Quarter to match Budget limitations.

This is how you handle excess Government expenditure. lgl

Sandy P. writes:

How do the new health care accounts factor into this?

I just read that some doctors are not accepting insurance anymore and suggest to their patients to buy catastrophic policies and take advantage of the accounts.

Which, IMHO, Catholic Charities of CA should do since they are now a secular organization according to a recent ruling.

Talk about shaking the country up, if they have the guts.

Bernard Yomtov writes:

What spending cuts does he recommend? All I see is some vague stuff about freezing discretionary spending, "reforming" entitlements, and balancing the budget in ten years with no tax increases.

Pretty standard gibberish.

Mark writes:

I don't see a lot of "spinach" in Riedl's report, just the typical Heritage Foundation cotton candy. We get the usual calls for "reforming entitlements" with no discussion of how this is to be accomplished in practice, the usual talk of "returning local functions to state and local governments" with no consideration of the specifics of the programs involved, and the usual long laundry lists of government programs to be cut, with no careful consideration of the merits and demerits of doing so. It is clear, just to gove one example, that young Mr. Riedl knows absolutely nothing about the actual functions of the USGS.

Moreover, the absolute refusal to consider any sort of tax increase, by itself, is sufficient cause for any serious economist to give pretty short shrift to Mr. Riedl's suggestions. Economic analysis does not support a dogmatic "never raise taxes" approach.

Boonton writes:

The SSI/Medicare problem stems from fewer workers and more retired people. What about modest incentives to boost the number of working retired?

Take a retired person collecting SSI who continues to work a full time job. He is paying 14% combined SSI taxes (?). Suppose we split that with him allowing his benefits to increase by 7%. SSI improves since it collects more than it paid out. The overall budget improves because the person would be paying income tax on his earnings. The overall economy improves because a perfectly fit person is in the labor force.

If the labor force participation rate among the elderly grows, the worker-to-retiree ratio problem changes. This sort of change can be done immediatly because it is entirely voluntary and costs nothing.

Mcwop writes:

There are a few other factors you might consider:

(1)Reduction in beneifts if you earn above a certain amount and begin benefits early (most poeple take benefits early). If you are younger than age 65 and 4 months in all of 2004, we must deduct $1 from your benefits for each $2 you earned above $11,640.

If you turn 65 and 4 months during 2004, we must deduct $1 from your benefits for each $3 you earned above $31,080 until the month you turn 65 and 4 months.

(2)Taxation level of benefits if you earn more than a certain amount. For a single person, your benefits will not be taxable unless the total of your modified AGI, plus one-half of your Social Security benefits, exceeds $25,000. If you are married and file a joint return, your modified AGI plus one-half of your Social Security benefits would need to exceed $32,000 before taxes kick in. If you are married filing a separate return, and you lived with your spouse, your threshold is actually zero, and your Social Security benefits may be taxable from dollar one.

For the purposes of the Social Security limitations, modified AGI generally means your AGI for regular tax purposes, plus any tax-exempt interest that you may have received. So, investing in tax-exempt bonds in your later years will not dodge the taxes that you may owe on your Social Security benefits.

(3)Many companies want older employees to retire, so they can be replaced with younger workers, who start at the lower end of the payscale. With that said there are some businesses that want senior employees.

The first two are disincentives to work.

Boonton writes:

But if a person is collecting SSI he will still pay taxes on his earnings no matter what. You're talking about an additional disincentive to work which is benefit cuts that apply to SSI receipants who earn income.

Fundamentally the problem is that the economy is trying to have too many retired people. The solution is, IMO, to increase labor force participation by older workers. So take someone over 65, if he works let the gov't split the combined SSI taxes with him (he'd be taxed 7% & get the 7% his employer kicks in). This will be an incentive for able and willing elderly to stay in the labor force. It's a net positive for the gov't since SSI will collect taxes it otherwise wouldn't have collected (7% of something is always more than 14% of $0). Since wages also generate regular income taxes this is also a positive for the overall Federal budget as well.

Mcwop writes:

No, you pay zero taxes on your SS benefits if you fall below the thresholds that I posted above. In addition you may take benefit reductions. Why would someone work if they won't earn much more than they could by not working, because of taxes and benefit reductions? Could be a bad deal when a retiree calculates their break-even age. I deal with retirment planning and we do the math all the time for this situation.

Eric Krieg writes:

>>Pretty standard gibberish.

It's worse than jibberish. Fiscal and monetary stimulus is the only thing keeping the unemployment rate so low.

Conservatives might not like pork spending. However, I suspect that they would like 9% unemployment a lot less. Rasie interest rates (there is a housing bubble that needs to be burst, or so I read), raise taxes, and cut spending. You will have 9% unemployment before November. Kerry will be the first French President (NOT the second Black President).

Boonton writes:

It seems to me SSI could still be tweaked in such a way as to make continued work a win-win situation. Win in that the person working will be better off than the person who opts to just collect. Win again in that wage income generates SSI tax revenue as well as regular tax revenue (plus, of course, overall economic growth).

(3)Many companies want older employees to retire, so they can be replaced with younger workers, who start at the lower end of the payscale. With that said there are some businesses that want senior employees.

True but generally if something is up for sale it will get sold. At one time it seemed no one wanted woman workers but when women entered the labor force in large numbers the market adjusted to take advantage of a new resource.

Older workers could continue their jobs past 65, work part time, work an 'easier' job for just some extra spending cash or some other combination. The idea is that we are not increasing the age of retirement as fast as our expected lifespan. Maybe the political will isn't there yet to index retirement to expected lifespan but it makes sense to encourage continued work.

Anthony Suruda writes:

The cuts are the usual fluff such as making the govt. more efficient.

There may be some low-hanging fruit to trim from SS. I'm an occupational medicine physician and at a meeting on disability management a colleague told me that 1/6 of all new Social Security recipients are for disability rather than retirement due to Congress liberalizing the requirements for disability late in the 80s. I have been unable to verify the "1/6" estimate but if true this is something that Congress could reduce by tightening up disability criteria. IMHO this would be more politically feasible than raising the retirement age or cutting benefits. A little tweak to the system now might help...

Matt Young writes:

Reidl said this:

"A priority budget would ask lawmakers to fully fund a few top priorities, such as defense, homeland security, and a few domestic programs"

And I stopped reading. When he starts with the special programs he wants to protect, he us just like the rest.

Here is a better idea.

I have no favorites, I'll take budget cuts wherever they can be obtained.

And, yes, tax the rich, and tax them agressively When the rich start paying for government you get a very organized constituency for smaller government very fast.

Comments for this entry have been closed
Return to top