Start the conversation
Comment on This Story
This site uses Akismet to reduce spam. Learn how your comment data is processed.
Dear Mr. President and members of Congress:
With your policymaking actions of November and December, you have given the U.S. economy a short-term boost of adrenaline.
But these short-term gains carry a long-term cost. In the wake of the biggest financial crisis since the Great Depression, the U.S. federal government is looking at running $8 trillion in deficits over the next 10 years. If that forecast becomes a reality, the already-onerous national debt would soar to more than $20 trillion.
Given that outlook, without additional action on your part, the U.S. economy faces a precarious future and won't return to full health.
Despite these daunting prospects, there are five clear steps you can take that would revitalize the U.S. economy. These moves will help reduce unemployment, and will keep inflation at bay. But, most importantly, by effectively slashing the federal budget deficit as well as the national debt, this plan will ultimately enable the U.S. economy to regain its former competitiveness.
Success, of course, is in the details.
Short-Term Gains Will Lead to Long-Term Pain
There's little doubt that policymaking moves of late 2010 will lead to near-term gains in the New Year.
For instance, your so-called "QE2" bond-purchase plan reduces the strain of financing the U.S. federal deficit, which will free up funds for private businesses to expand. Your tax-stimulus plan eliminates a January tax increase and provides further purchasing power to the American people, boosting consumer demand and economic output.
But these short-term gains carry a long-term cost. And without additional action on your part, the U.S. economy will not return to full health.
In fact, after a few months of stimulated activity, inflation will return, bond yields will soar to uncomfortably high levels, and the U.S. recovery will be choked off – which will prolong the misery of high unemployment.
To make sure the recovery continues beyond the middle of the New Year, you need to take action in five specific areas. And you need to do so in the next few months.
Let's take a look at the areas that need attention, one at a time.
Step One: Spending Cuts a Must
First and foremost, you must cut discretionary public spending by at least $150 billion per annum (the approximate equivalent of about 1% of current gross domestic product, or GDP).
Granted, it will take more than that to restore the federal budget to balance. But – as you are well aware – a larger spending cut would be deflationary in the short term.
Besides, that $150 billion figure is a gimmick-free number. So if you engage in any of the usual "funny" accounting – shoving programs into previous fiscal years or passing liabilities onto the states – those aggregate dollar figures would have to be added to the $150 billion.
And that's not all. Any additional spending – such as the implementation costs of "Obamacare," extensions of unemployment benefits, or payouts to 9/11 first responders – has to be fully offset with additional cuts.
Step Two: Revenue Must Increase
Tough times demand tough choices. And there's one tough reality that's unavoidable: Tax increases are inevitable.
However, there are a number of possible tax increases that, far from having a negative effect on the economy, would end subsidies for activities of little economic value.
Ending the tax-deductibility of corporate debt is a big one – it only encourages damaging leverage. Another tax you could usefully institute is a small "Tobin tax" on Wall Street transactions, which would sharply reduce rent-seeking "fast trading" and derivatives activities.
There are other increases that are worth discussing, too, including the removal of the home-mortgage tax credit and the end of the tax deductibility of charitable contributions. Charitable deductions, for instance, are very inefficient in producing charitable contributions for the genuinely poor, and arguably damage education by forcing it into inefficient "non-profit" status.
Eliminate these "tax expenditures" and you can afford to make the Bush tax cuts permanent. And if you have any money left over, you could eliminate the dividend tax and reduce the estate tax to 15% to 20%. You'll be amazed how much better the economy performs with these distortions removed.
Step Three: Heed the "Deficit Commission"
All of you know that the Bowles-Simpson commission's recommendations for making the Social Security entitlement program viable over the long term make sense. So implement them.
The commission did not recommend anything useful for Medicare/Medicaid. But solving that will require you to get the tort lawyers out of medicine and to eliminate the cross-subsidizations in the medical system. But I understand that healthcare is a sensitive subject right now, so maybe leave this one for 2012 or even 2013.
Step Four: Stamp Out Wasteful Subsidies
If you really want to make the economy work better, you could remove the subsidies for agriculture and "green" energy, especially the combined subsidy and tariff for corn-based ethanol. But I understand that may be asking too much!
Step Five: End the Fed Follies
Ben Bernanke, we have not forgotten you. Keep the "quantitative easing" in place for a few months if you must, until Congress finally executes the above steps one through three and actually reduces the U.S. deficit.
But for goodness sake, please stop subsidizing borrowing at the expense of saving.
We know what you refuse to admit, that the "true" rate of inflation in the U.S. economy is now at least 3% – and rising. That means the benchmark Federal Funds rate should be at least 5%, to give savers a reasonable real return on their capital.
Put short-term interest rates at that level, and allow long-term rates to rise to their market level of around 6%, and you've given the U.S. public a proper incentive for saving. At the present time, you and Congress are combining to de-capitalize the U.S. economy, penalizing saving and encouraging huge balance-of-payments deficits. In the long run this will force U.S. wages down to emerging-market levels.
Stop doing this. Now!
The Bottom Line
I realize that I'm making some tough calls here, but none of these recommendations were made lightly.
The reality is that this country – and its economy – has to change course.
To understand the urgency – and the stakes – think of it this way: If we continue along this path and achieve the currently projected debt level of $20 trillion, every American's share of the national debt would exceed $65,000.
And that's not the half of it. According to the U.S. Congressional Budget Office (CBO) U.S. federal debt ballooned from 40% of gross domestic product (GDP) at the end of 2008 to more than 50% last year. And in a report issued last spring, the CBO warned that unless we change course, the U.S. public debt could reach 90% of the nation's economic output by 2020.
America's debt-to-GDP ratio hasn't been near the 100% level since the end of World War II, when it peaked at 109%. When Greece touched off the worldwide sovereign-debt panic last year, its debt-to-GDP ratio was right around 120%.
Even without such default fears, high debt loads stifle economic growth. In fact, one recent research study – conducted by economists Kenneth S. Rogoff of Harvard and Carmen M. Reinhart of the University of Maryland – concluded that when debt-to-GDP ratios exceed 90%, median growth rates fall by 1%, and average growth falls considerably more.
As Isabel Sawhill of the Brookings Institution noted: "The interest can get so burdensome that the country can't afford to repair its highways or educate its children or provide other essential services. You become a much weaker nation."
We can't let that happen.
But what is key to understand here isn't that this is a convenient time to act. It's the only time to act. If we allow the insane deficits to continue, and the national debt load to mount, we won't be able to act later.
If you guys take the steps that I've outlined above, you will all deserve to be re-elected and U.S. Federal Reserve Chairman Ben Bernanke will deserve another term of office in 2014.
If you don't take these steps, and the U.S. economy fails to recover, the American people will rightly react harshly in 2012.
And none of you will like the result, which will make the Tea Party seem like – well, a tea party.
Sincerely,
Martin Hutchinson
Contributing Editor
Money Morning
(www.moneymorning.com)
If you wish to do so, we urge you to contact your elected representative in Congress right away. Here's what you need to do.
Step 1: To find out who your congressional representative is, and how to contact them, please click here (Website address is: https://writerep.house.gov/ ).
Step 2: You can pen your own letter. But you should also feel free to cut and paste the model e-mail note that we've displayed just below.
In either case, we suggest using the following subject line (by using a consistent subject line, Congress will understand that a true taxpayer campaign is underway).
Subject Line: Attack the Deficit Now
Step 3: Make sure to include a link to today's "open letter" in Money Morning.
Step 4: Lastly, drop us a note to let us know that you've joined us in taking steps to fix this country's budgetary and economic problems. Write to us at mailbag@moneymappress.com.
Feel free to use this letter:
Dear [Decision-Maker],
I am writing to urge you to attack the federal budget deficit and to avoid a nightmarish future in which the once-great U.S. economy is being crushed by $20 trillion in federal debt.
I realize that this involves tough choices. But I also understand that by taking a consistent, measured, long-term approach now, we can avoid a future marked by tepid growth, perpetually high inflation and unemployment and a complete lack of global economic competitiveness.
The accompanying open letter, published by the global investing news service Money Morning, details a five-point plan that employs such an approach. As a member of your constituency, I urge you to read and carefully consider this plan, to dispense with the usual political game-playing, and to act with the urgency that this dire economic situation demands.
For more information on how this combination of spending cuts, carefully chosen revenue increases and key moves by the U.S. Federal Reserve will help the American taxpayer, please read this recent commentary published by Money Morning:
http://moneymorning.com/2011/01/05/open-letter-washington-slash-federal-budget-deficit-save-us-economy/
Sincerely,
{name}
{address}
[Editor's Note: If you have any doubts at all about Martin Hutchinson's market calls, take a moment to consider this story.
A bit more than three years ago – late October 2007, to be exact – Hutchinson told Money Morning readers to buy gold. At the time, it was trading at less than $770 an ounce. Gold zoomed up to $1,000 an ounce – creating a nice little profit for readers who heeded the columnist's advice.
But Hutchinson wasn't done.
Just a few months later – it's now April 2008 – with gold having dropped back to the $900 level, he reiterated his call. Those who already owned gold should hold on, or buy more, he said. And those who failed to listen to him the first time around should take this opportunity to remedy their oversight, he urged.
Well, we all know where gold is trading at today – in the neighborhood of $1,380 an ounce.
For investors who heeded Hutchinson's advice, that's a pretty nice neighborhood.
Investors who bought in after his first market call are sitting on a profit of as much as 79%. Even those who waited, and bought in at the $900 level, have a gain of as much as 53%.
And let's face it, if the "Inside-the-Beltway" crowd can't change our current course, inflation will be a key part of America's future. And that means that gold, silver and other commodities are likely headed much higher.
But perhaps you don't want just "one" recommendation. Indeed, smart investors will want an ongoing access to Hutchinson's expertise. If that's the case, then The Merchant Banker Alert, Hutchinson's private advisory service, is worth your consideration.
For more information on The Merchant Banker Alert, please click here. For information about Hutchinson's new book, "Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System," including how to purchase the book at a 34% discount, please click here.]
News and Related Story Links:
- Money Morning Open Letter to Washington:
An Open Letter to Washington: How to Fix the Deficit and End the Bush-Tax-Cuts Debate. - Money Morning Commentary:
Will America Choke on its Own Debt? - Website:
How to Contact Your Representative in the U.S. House. - Money Morning "Outlook 2011" Economic-Forecast Series:
A Bond Investment Strategy For the New Year. - Money Morning News Archive:
News Stories About Obamacare. - Money Morning Investment Research:
Bush Tax Cuts: How to Profit From the Compromise Tax Deal In 2011. - Money Morning Special Report:
The Tobin Tax: The Fix-It Plan Wall Street Hates … But Can't Seem to Kill. - The National Commission on Fiscal Responsibility and Reform Report:
The Moment of Truth (December 2010). - Tutor2u.net (Economics):
Balance-of-Payments Deficits. - Money Morning News Analysis:
Why the Federal Reserve's Quantitative Easing Strategy Won't Save the US Economy. - FreeDictionary.com:
Real Rate of Return.
A start: A 10@ reduction of entire federal workforce; a 10% reduction of wages and benifits for all;thru attrition reduce present employee #'s until it is 75% of current number. Then assess the situation for additional cuts, perhaps outsource all back room jobs, etc. We have no choice, act now. Jack McMenaman
Goodness me.
It seems we are stairing oblivion in the face and are frozen in INACTION.
Is our system in checkmate??
We have not been on couurse for at least 10 years.
We are falling off a clif; cannot moderate. Thank you.
Regarding Step Four —-> among all the stupid things Obama / bernanke combo is doing, this is prolly the only good thing.
whether we like to admit it or not, agriculture and green-energy CAN make a huge difference!
even if we dont want to hear this ……..the days of ,,pollute all you can, cash in all you can" are long gone.
like it or not, sacrificing the enviroment for a short term gain is NOT an option
how about future generations ?! what will you tell them ?
something along the lines of: ,,oh! sorry you can no longer drink normal water / breathe clean air / eat fresh and normal vegies ….but we had to cut down 2 % on losses, so we had to sacrifice all enviroment to do it…"
as of now, its NOT a matter of win/ lose…..its a matter of LOSE LITTLE vs LOSE BIG
in the extreme, we CAN live without much of the modern world conveniences, but NOT without the Nature's ecosystems.
so step 4 is utter crap
I like all of your recomendations to your government, Martin, except the one about removing the tax deductability of corporate debt. As a small businessman, and with deep connections into the small business community, I know that small businesses do not expand using their own capital. They borrow it. Small business is a HUGE factor in the creation of new jobs. If a small business cannot deduct the cost of borrowing, then any expansion is going to wait a long time. The negative effects on an economy that is already sufferring, would be substantial.
Drill here. Drill now. Build nuclear power plants. Stop all subsidies; especially to foreign gov't. Stop the war & rebuild our defenses including immigration control.
Eliminate job-killing agencies like EPA, Energy & Education killers like Dept of Education. Eliminate crisis producing agencies like Housing & Urban Development.
Cut Congressional salaries & their budget in half–they caused the problem. Sell gov't land to states for $1.00. Feds do not know how to manage it.
A Tobin tax of 0,5% will not hurt the public very much. It will cost the banksters a lot more than they like to admit!
Put a tax on gasoline, 50-100% would be a very gppd idea, slashing consumption to a more sustainable level. I know how much people love their V8 trucks, but it does not take more than a 4 banger to get to work. In fact I find it highly patriotic to use as little imported gas as possible.
I think that Mr. Rienhardt's comment about item #4 misses the point. The article is not saying to abandon the environment but rather the subsides that are of a questionalbe value to the overall economy and let the shift into the next generation happen because of innovation and not because of a tailored tax package designed to benefit a narrow corporate purpose.
Is this a joke? This is tinkering and it just shows how far away the debate is from being substantive.
$150 billion. Please. Slash everything, including so-called "defense" and take the pain now. It ain't gonna get any easier. The government is largely parasitic and counterproductive anyway. Time to starve a feeding bureaucrat.
How about rolling back spending to Clinton era levels as a start? We seemed to get by okay with that level of waste, fraud, pork, boondoggle, corporatist scheme, and giveaway program. Will it shock the economy? Hell yes, but a total collapse of the bond market and the clownbuck are coming if REAL action aren't taken.
Don't end the Fed "Follies"…END THE FED….period. They have enabled the Congress to spend beyond its means for decasdes. They have subsidized borrowers and punished savers. They have blown up bubble after bubble. They have trashed the currency. They have created a highly unstable system…exactly the oppistite of what they were putatively established to do.
Here's a radical idea: Let the market set short rates…you know, like it does for EVERYTHING ELSE. And let the bond market try to find actual real buyers. QE is a con. It's INFLATION.
And stuff the new taxes. The Congress will just waste the money. Cut, cut, and cut some more. Anything less equals game over.
My analysis is that Mr. Hutchinson is a big government proponent, and definitely not a conservative. You want to see this economy take off? Develop our own domestic energy resources; Implement a flat tax/fair tax system; repeal Obama Care and incentivise market competition with tort reform, eliminate or reduce the corporate tax to 15%; eliminate capital gains taxes; enforce the 10th Amendment of our Constitution; eliminate non-essential departments of the federal government like education, EPA, and energy. Any or all these actions would make the US the place to do business and our growth would propel government income to levels which with the reduced spending would repay our debt within an estimated 10 years if not sooner.
Take away the mortgage deduction? That would kill a lot of middle class Americans.
People bought houses based on this.
Why have a house then? Just rent.
Washington needs to clean up their dirty act before hitting the middle class Americans!
I know most Americans who run their household on a small budget would be able to clean up Washington real quick. They know they cannot spend other peoples money. And that's how Washington needs to act.
so? another b.s. move to fool the citizens into thinking that some thing is being done for them. Abondon ship is what in think.but who care what i think
You guys need to read Joe Giglio's recent hard-hitting page-turning book UNSPEAKABLE TRUTHS (available on Amazon). Especially the final chapter. Which lays out a sensible plan for resolving America's financial problems.
You pundits keep failing to mention the most profound cause of our economic malaise – our insane military adventures which have brought this country to the point of insolvency. While we kill and bomb financed with borrowed money, the Chinese go around the world, including our neighbors, and make deals. We do war, they do business. When will we realize that the dangers of empire warned against by the Founders, G. Washington in particular, later amplified by Eisenhower, are real and threaten to destroy our democracy. Capitalism in America is driven by unbridled greed which sees even reckless military adventures as profit centers. Placing ersonal enrichment ahead of love of country will destroy us all. You may decry big government, but how about honest government – an honest broker that can both rein in the impulse to plunder and foster the notion that we are in this together. The Masters of the Universe wouldn't look so masterly if their toilets backed up or their brakes went out or their computer links were disrupted or their food wasn't delivered from the farms and the poor working class wasn't there to wipe their noses and keep everything running. So before you propose to cut SS or Medicare look at the real cause and remember that it takes all of us with money in our pockets to make and economy work. Tax cuts don't create jobs. Businesses don't create jobs (on the contrary, their drive is always to eliminate or do with as few workers as possible), demand creates jobs. People with money to spend create jobs by causing business to hire to meet that demand. It's called TRICKLE UP.
Dear Readers:
Thanks so much for taking the time to respond to Martin's "open letter." Your comments were well-thought out and warranted a real response.
Jack, your suggestion that there must be federal job cuts certainly merits consideration. Corporations must control spending and expenses during tough times. Government should be no different. And the U.S. federal government needs to be refocused into a leaner, more effiicent organization. The time to act is now.
Job cuts could well be part of the equation in terms of the $150 billion in immediate net spending cuts that Martin has called for. Great points.
Albert, thanks for your note. It's great to hear from readers "down under." (As an aside, I should tell you that as a career-long journalist who's very interested in global investing trends, I've for years been a regular listener to world-band [shortwave] radio broadcasts. And Radio Australia is one of my favorite listening targets).
You are absolutely correct in conveying the sense of urgency that you do. Martin makes the point that NOW is the time to act on this plan to streamline and refocus the U.S. federal government. That's not because it's convenient to do so …. it's because (as you point out) we are on the verge of losing control. This is the United States' last best chance to fix its federal finances. If we put this off much longer, the national debt will be too large to attack — sentencing this country to a future as an economic also-ran.
Reinhardt, thanks for your comments. Actually, we agree with most of your points. And reader Jon Volz, who responded to your comments, did a good job clarifying ours. You see, as Mr. Volz quite elegantly notes, we're not advocating an abandonment of green-energy initatives. We just want Washington to abandon subsidies and incentives that are unrealistic, don't make economic sense or fail to address the urgency of the situation.
In fact, we believe this country should be putting together a national energy policy that's akin to a full-court press — taking advantage of any and all REAL opportunities that are out there. Not only is this necessary from a U.S. economic standpoint, we also see this realm as one of the greatest profit opportunities for individual investors in the years and decades to come.
So I think we're actually on the same page here.
Jeff, great comments. We agree that small business is the No. 1 creator of new jobs and is also a key engine of U.S. economic growth.
When it comes to the tax deductability of corporate debt, our big issue is with major corporations that overleverage themselves. The tax code nurtures this — and so does Wall Street, thanks to all the fees it collects from helping companies issue "high-yield" debt (ie. junk bonds). It's almost as if whatever small business gives us, overleveraged corporations taketh away.
As a career business journalist, I think back to the "LBO" craze of the late 1980s and Gordon "Greed is Good" Gekko. It's no surprise that this financial frenzy was followed by the "corporate-downsizing" mania of the early 1990s, which led directly to the "jobless recovery" and slow-growth economy of the first half of that decade.
Big companies overleverage themselves during fat times, but don't build in a margin of safety for the downturns that inevitably follow. Then when the economy sours and these firms can't cover their interest payments, they need to embark upon a slash-and-burn cost-cutting spree, which typically involves scores of layoffs. In fact, layoffs is a misnomer. Smart journalists stopped using that term when companies announced the job reductions and just started using the term "fired." After all, these aren't layoffs — the jobs are never coming back.
This creates a whipsaw effect on the economy that's not healthy. And that's not all — the fallout extends into the financial markets, too. During healthy periods, investors grab high-yield ("junk") bonds for their hefty yields — and we often see their risk aversion disappear (by that, I mean that investors start to regard these almost as top-grade corporate debt). When the economy sours, junk-bond prices collapse, scorching investors and adding to the overall economic malaise.
Nonetheless, Jeff, your comments are valid. And I'm confident that there's a way to address both of these needs.
Greg, you've made a long list of points here. Thanks for the time you put into this introspection. Let me address the points that appear the most relevant, or that feature the greatest urgency.
First and foremost, as noted above, a full-court press on the energy front is definitely a front-burner need. Great comment. And some of the spending cuts you advocate should certainly be in the mix in terms of the $150 billion in spending cuts that Martin says Washington needs to find immediately.
One other solid point…that there needs to be an overall streamlining and focusing of the federal government….is right on target, too. Nicely done.
Michael, you're clearly a regular reader of Money Morning, and of Martin's columns in particular. Martin is a big advocate of a Tobin tax. He's written several columns about it; in fact, late last year he actually wrote an open letter to Washington advocating just such a move. We're big believers in the potential benefits that a Tobin tax could bring. Well done.
Jon, thank you for your excellent clarifications of our arguments. As you'll see above, I said as much to Reinhardt. Your comments were greatly appreciated, and I want to thank you personally.
Indeed, I would like to thank you all once again. Money Morning welcomes constructive comments — both pro and con. So please continue to write.
I have said many times — and in many different forums — that the Money Morning readership base is smart, well-informed and passionate about the key issues of the day.
Today's comments make that point even better than I could. Thank you all again.
Respectfully;
William (Bill) Patalon III
Executive Editor
Money Morning
(www.moneymorning.com)
Why not move to more consumption type taxes that tax fairly and away from envy based,progressive income taxes,that punish success and cause all kinds of inefficient investments and tax avoidance and tax evasion schemes.
90 % excellent actions to take at the federal level. BUT anything that's done must pass the
constitutional test. Most govt agencies are operating outside of constitutional mandate. education
and most other agencies are ONLY in the purvue of the states. Most importantly–stop freddie and fannie and eliminate the interest on mortgage deduction(even tho I have a good sized mortgage on my own home.) And I have always espoused the idea of a gasoline(diesel and all others) tax of at least $1.50 and stop giving the lazy poor so much. As a Pharmacist of 55 years, I can tell you 90% of the recipients are just gaming the system. Nuff said, Don
Sebastion:
Thanks for the note. Actually, despite your claim that we're not addressing the issues, the issues that you've outlined sound like a story list out of the Money Morning news archive. The fact is that we've addressed virutally all the topics you've listed here — and many more besides.
The war? We've said again and again — going back to the previous administration — that this government needs to make some tough choices about how it's spending its money. Our moves in the Middle East is one of those choices that must be addressed.
In today's piece, Martin said the federal goverment has to IMMEDIATELY identify $150 billion in REAL spending cuts. We didn't specifically say what those cuts should be. The point that I think you need to understand here is that space for individual stories is limited, and this one had to cover a lot of ground. But if you look at our cumulative news coverage, commentaries, special reports, investment analyses, reader-service stories and economic-outlook series, we've drilled down into the details time and again.
China? For years we've been imploring our elected leaders to look at the wheeling and dealing that emerging superpower has been engaged in while we spin our wheels and try to force other countries to act as we want them to before we'll sign any contracts. Indeed, one very recent series of stories noted that China and other Asian countries are snapping up oil properties right here in North America — in Canada, which is literally right under our noses. Those opportunities were there for the taking …. right in our backyard for years. Now many of them are locked up for decades. And we'll see no benefit.
As for unbridled greed — we've been harder than anyone on Wall Street and its "profit-at-all-cost" mentalities. In fact, Martin was actually one of the very first writers to warn of the ticking financial time bomb known as credit default swaps. He wrote about that in April 2008 — that's about SIX MONTHS before the global financial crisis hit like the economic tsunami that it proved to be (to show that I'm not spinning a yarn here, I've listed the URL below).
http://moneymorning.com/2008/04/02/credit-default-swaps-a-50-trillion-problem/ ww
I could continue to address some of your other criticisms here, but it would prove to be more of the same.
We greatly appreciate you taking the time to comment, and laud you for having the passion to do so. However, I must take exception wtih your mischaracterizations of the views we push and the problems that you say we've missed or ignored outright. We've developed a reputation as being a very prescient news organization, as well as one that's not at all afraid to take on vested interests.
You're clearly a very smart gent — and you care about this country's future. Those are two attributes that deserve respect. I would welcome having you become a regular reader of our work. I am confident that you'll see then that what I'm saying is true.
Respectfully yours;
William Patalon III
Executive Editor
Money Morning
All of these kinds of commentaries are really based more on ideological stance than anything about what the economy is going through right now. Government debt and money printing will probably cause us pain down the road, and there must be a plan to reverse the deficit, but it's not the reason for the current economic problems. The idea that tax incentives to give to charity and support energy conservation should be taken away for the purpose of making the Bush tax cuts for all income levels permanent also appears to be ideologically driven. It is very common to present such ideological arguments within the wrapper of financial/economic advice, but that certainly doesn't lead to logical clarity.
The miljonairsclubs: US congress & US corporations topmanagement (=Walstreet) have been corrupting the economy and the World (9-11 truth) for too long. Unlike ordinary people, they lack a conscience.
IF the US markets were truly free markets(Adam Smith's free markets with small companies and competition), without this predating elite(Wallstreet), all the superfluous big banks and inefficient car companies would have gone.
That would have been "CHANGE", if only Obama had stopped the bailout, and a great improvement.
Now the agony is prolonged.
What they should have done instead of flooding the rich with cash is give every american adult 2million dollars. Stipulations: 250,000. in a interest account to pay for your health care. 250,000. in interest account not to be touched till retirement. The rest could buy homes, cars invest in small business putting people to work. Even prisoners money to pay for thier upkeep, money goes to support thier families instead of welfare. There would be no more prison costs to tax payers. There would be no more welfare for x amount of years. Can you imagine what that would save! People can purchase health insurance so hospitals and Drs get paid!
I know sounds strange but do the math cost wise pay the people a small amount, drop in the bucket compared to the bail outs. But NO we cant give to the people who support this contry and have made it great. Plus paid all those bureocrats salaries to muff it up!
I'm shocked that Hutchinson, most TV talking heads, and most of the above comments ignore one of the biggest financial burdens on this country … the totally out of control defense spending.
Firstly, it has been proven over and over, the defense budget could be reduced by 50% and not impact our nation's safety nearly as much as the out of control spending.
Secondly, homeland security is another financial drain that costs incredibly more than any value from it … witness the meaningless airport security but and an "open" southern border!
With these two changes, we can balance the budget within five years. And then we can remove Soc Sec from the budget, and operate it as the independent trust fund it was designed to be, not Lyndon Johnson's "milk cow" to pay for the Vietnam war.
Dear Martin, I'm sure you know how all this really works. Not the part you just addressed, that's a matter of standing very close to the tree so as to see only the bark and not the tree, let alone the forest. Ms. Sawhill's warnings are recycled rhetoric. "we can't let that happen." We have and continue to let it. But this is not only unavoidable, it is necessary. To bring peace (yes, world peas) the wealthy nations need to go broke. Isn't that what the called for 'level playing field' is all about? It has been said that "nations with the (financial) ability to wage war will continue to do so". The finance arm of current world government (World bank, IMF, et al) has it under relative control. The US has had what it has wanted in trade for being global policeman. Britain was already sufficiently compromised after WWII so the US got to be guest of honor at the Bretton Woods cotillion. The leaders who matter allow all these antics because it ensures the crisis which will enable many more global goals to be attained than if the US somehow saved itself now. So, it's not gonna get saved. Will a new Congress with a new determination do the trick? My prediction is, NO. Great theater, yes. Will you howl about the Constitution? Sure why not, its just more theater. The treaties are superior. (Article 6, clause 2, US Constitution) Whatever NAFTA or LOST or any of the others require will be accomplished more or less eventually. Just remember the joke about the 3-legged pig. A pig that good you just can't eat all at once. C'est la vie
Nothing you said matters because the fundamental aspect of our declining economy is the lie of free trade. This concept is aristocratic thinking which is anti-democratic, anti-labor and anti-American. If we protected our economy like the rest of the world, we would have jobs, government revenues, less deficits and most of all, a return to social mobility. Stop, being a shill and speak the truth!
Willaim Patalon III
Bill,
Are you reading the comments?
Some of those commenting are clearly misinformed regarding the Federal Budget, the Federal Debt, and the Federal Budget Deficit (with and without Social Security), as well as the Revenue Stream to the Federal Government in absolute terms and as a function of GDP (with and without the government's hedonic calculations).
Perhaps, you should point this out in your gentle way, and we could all be better informed rather than simply acknowledging the misinformation.
There are always solutions to be found if the will to change is strong enough.
However, few here seem to be taking into account the fact that the hidden agenda of the Obama administration and the (behind-the-scenes) world powers that be, want the US economy to fail, that is the only thing that is standing in the way of actually establishing their One World Order, or whatever you want to call it. They MUST bring the USA to its knees in anyway possible so they can redistribute its wealth to lesser nations. As long as we have people of that persuasion in power, few if any of these suggestions will actually happen. There will be a lot of double-talk and smoke screens but very little real reform until we actually do have "end game" for America, just like they have designed.
Suggestions like these are a great beginning but first we must face the REAL problem, that we are being destroyed from within. Failing to acknowledge, educate and openly discuss this fact is the real problem and will most likely lead to the demise of our American way of life.
In all these comments, I saw nothing that refers specifically to the "criminals of Wall Street" who stole the vitality from our economy in the name of profit NOR and powerful means by which they should be made to restore it! Record profits?! Record bonuses?! They should be taxed at 90% for at least 5 years, prevented from changing jobs and "incented" to do as well for the USA ("of the people, by the people, for the people", including THEM) as they did over the last decade(s) for themselves! What was done by Wall Street to the American economy is little different than what Bernie Madoff did and he'll be in jail until he dies! Note who is paying the highest price: the middle class and the least among us.
I think some of the thoughts in this letter make sense, but I'd like to see references to back them up. 0ne especially struck me, the idea that charitable deductions are very inefficient at producing contributions. Why do you think so? I see clients use that all the time, I often see them make many small additional contributions at the end of year, and deductibility is their primary reason. Most of my clients make 45 – 85K, so we aren't talking about people with a lot of disposable income, or in the top tax bracket. So, please, put your money where your mouth is :-) and back up that statement with facts.
Cuts, cuts and more cuts. What will happen to medical services, schools, small businesses, and middle class? People lined up around blocks to find a job. Do you remember 2009?
Lunatics will shoot and no ambulances will arrive, you will have to live in gated communities.
There is also a huge problem with Islamic extreemism, Which forces us to spend on defence.
Global free trade is another problem , our low income jobs are going away to other countries, making them rich with trade surpluses and creating unemployment problem here.
I will take inflation rather than deflation, let the gold go to $10,000/oz. People will ask for higher wages like the 70's, but they will have a job.
We will pay off the deficit in reduced cost. Lenders will lose (China). Our resources will cost more. We should also restrict foreign ownership of our strategic resources.
We have plenty of natural gas. We should make it mandatory to build gas powered autos and power stations. Build nuclear power for electricity and clean water with reverse osmosis.
You really think members of congress will pass resolutions to make the cuts you suggest and survive in elections?
I agree that if we are to sustain our Government- tax revenues must increase but your coimment"tax increases are inevitable" impliies that tax rate increases produce a corresponding increase in tax revenues. They do not. They may in the short term but the negative effects of such actions depress the economy and tax revenues in the long run. Also given our present inefficient, arbitrary, and politically tainted tax system based on various income taxes, we can expect a lot of disappointment, delays, ultimate failure and the continuing corruption of the system by lobbyists and feckless members of Congress who manipulate the tax laws for their own political benefit. Tax Revenues will grow with a strong economy based on higher, prductivity, a simpler and more efficient tax system (a flat tax or a consumption tax), a decrease in regulations, limitations on the power of big labor unions, restrictions on parasitic lawsuits (litigation- particularly class action lawsuits), increasing penalties (including jailtime) for public officials who abuse, misuse or exceed their power for their own self interests and the avbailability of capital and a well trained productive work force (labor) which can keep up with the advances in Science and technology.
As yet, I have not seen much in the way of specifics, mostly generalities and rhetoric. Right now Congress is the big problem– not the solution. but that might be changing because the the electorate seems to be demanding results.. I personally have contacted my elected representatives with various comments and questions and sometimes I get a callback but generally a form letter.. For instance, concerning the issue of implementing the Value Added Tax, I have asked the question "Where in the US Constitution is such a tax authorized?" First I received a form letter explaining the Value Added Tax and that my Congressman was opposed to it but did not address my question. I called again- still no answer. I called both my senators- no answers. Either they are too busy to answer, too indifferent, don't know (that's scary) and don't care or maybe they didn't understand the question. Their responses to date do not inspire confidence. These are interesting times- we will probably muddle through but it will be painful.. JS
Disagree with approach on many levels.
I would keep charitable deductions since the private sector is much better at taking care of the needy than the govt. That is part of the problem now.
Adding fees & complication to trading is not the answer. How about enforcing current laws and prosecuting fraud and not bailing out bad decisions. Should have reimbursed the investors, not the perpetrators! (I had a bond go under because the judge changed the rules of debt payback; who benefitted there? see Aleris)
Debt deductibility is another issue. It is probably not a good trait to encourage for business or individual and probably contributes to the high cost of housing and bad business decisions. But we have to start implementing simplified taxes and get the high cost of regulation out of the economy. (But it will be difficult to take away and I for one would hate to see it go for personal reasons! Some might note that the intent of the mtg deduction was to promote home ownership, but as any good intention it did not perhaps pan out as expected).
Decreased spending by govt has to happen and there is waste. I for one do not understand welfare. ie we pay able bodied to sit around and we all know about idle hands. There are those who need help and we all want to assist those truly needy and temporarily needing help. However, there has to be a better way. For example, encouraging unlimited births to those on public assistance is abusive to those paying taxes. Just reimbursing more for those selecting birth control (ie norplant) would probably result in savings. We are going to have to address end of life spending also. If you want a shoulder replacement for your demented parent in a nursing home confined to bed that is fine, but Medicare should not pay for that. (Interesting, the liberals want taxes to pay for whatever those on welfare want including lots of children or abortions and the conservatives want no discussion of end of life issues! But both are unsustainable positions for our country to continue to financially support)
Well, there are lots of other things I could point out but I am exhausted!
Ann L
1. I am in general agreement with Martin Hutchinson's five points, but suspect that they are extremely difficult to implement from a political standpoint. I hope that I am wrong.
2. The heart of the problem is unemployment which is impossible to reduce until the United States returns to producing more of what it consumes. China and other countries that run huge trade deficits are able to do so because they can restrain payroll taxes and supplemental benefits to the point that US manufactures cannot compete and they are efficient at controlling their foreign exchange rate.
3. There is a way to counter imports without being accused of direct protectionism. Simply put a 6% national Value added tax on all items except food. Then make an exception for all goods produced in the USA with more than 70% USA value added content. Apply the VAT to all goods at time of import and allow refunds only in a bimonthly tax return.
4. The Chinese trade deficit would be solved in less than a year. The Tax would be progressive. The deficit would be solved with reasonable attention to Hutchinson's five points and the aid of a VAT tax which of all taxes hurts new business activity less. We would in a couple of years import far less petroleum. Perhaps a VAT exemption could be amplified to include our free trade neighbors and partners Canada and Mexico.
David Dahmen
Barranquilla Colombia
please i am so happy with your informations and i for one,i want to be rich but how can i go about it now?my phone number is 0023799351972.
I saw one comment that the war and defense spending is the one costing America to go broke, but if we stop the war and get every soldier home, will the unemployment rate go up or down? The soldiers may still have a job, but what about all the support workers?
These are all good proposals and now we should all realize that the US Government and their cronies are intent on fleecing our once great nation for everything they can while leaving us all holding the bag. This is another version of the movie titanic, the nation that's unsinkable and they will load us up with as much debt as they can until it's about ready to sink and all the one percenters will hop onto their personal lifeboat and watch us sink while The dumbed down public realizes too late what's happening. Most wont be able to save themselves from the huge suction of all this debt. Instead of sending anything to Obamination, Maybe we could have just sent the public a pitchfork and torch set with a copy of titanic!