In his many recent media appearances, President Obama has argued that revenues (taxes) must go up on the “wealthy.” He talked about this just this week when he toed around supporting the non-plan coming from the Gang of Six. We disagree with the president that higher taxation would solve our spending problem, but instead of arguing with him, we would like to make him a deal, related to one particular statement from his Twitter town hall:
“But what I’ve also said is people like me who have been incredibly fortunate, mainly because a lot of folks bought my book … for me to be able to go back to the tax rate that existed under Bill Clinton, to pay a couple of extra percentage points so that I can make sure that seniors still have Medicare or kids still have Head Start, that makes sense to me.”
Again, tax hikes are not a legitimate response to America’s spending crisis. As it stands right now, the 115 million Americans between five and 30 years old (what we’ll call the Debt-Paying Generation) face bleak economic futures because of irresponsible spending, not a lack of taxation. But if President Obama wants income and other taxes to go back to the rates America had under Bill Clinton, perhaps Noel Sheppard has hit upon the right compromise: bring spending levels back to 2000 as well. As Just Facts notes in its National Debt section, this would bring spending down from 25% of GDP in Fiscal Year 2010 to 19% of GDP in FY 2012. With a GDP of slightly over $15 trillion, this is the difference between the federal government spending $3.75 trillion and $2.85 trillion.
This kind of spending reduction is exactly what America needs, yet we’re willing to make an even greater compromise in the hope of gaining the president’s support. Let’s instead start with FY 2008, the last year in which President Bush signed a full year’s budget and the first full fiscal year congressional Democrats held power. According to the Government Accountability Office, the federal government took in $2.7 trillion but spent $3.6 trillion that year. The original budget was $3.1 trillion, equal to just over 21% of GDP. So, given current GDP, that leaves us with a $3.18 trillion budget — still oversized, but a step in the right direction.
According to the Congressional Budget Office, budgeted federal spending in FY 2011 will reach $3.7 trillion. This would leave us with a $1.5 trillion budget deficit. While cutting back to 2008 levels would not come close to balancing the budget, it would cut our deficit by $520 billion — enough to prevent about $4,522 of debt for each member of the Debt-Paying Generation in 2011. That’s a nice chunk of change for a generation whose older members are now experiencing 16% unemployment.
Again, this is a compromise: the tax rates increase and spending decreases. The CBO says returning the rates for the “wealthy” to Clinton levels would diminish the deficit by an annual average of $70 billion for 10 years. When added to the spending cuts, we get an annual deficit reduction of $590 billion. Over 10 years, this is a savings of nearly $6 trillion — almost half again that of the Gang of Six’s rightfully hammered outline, and far more than what S&P is requiring of the United States in order to avoid an official bond-rate downgrade.
President Obama likes to say that nobody will be happy with a good compromise, and we agree — we need more spending cuts and no tax hikes. An ideal budget agreement would eliminate loopholes while significantly lowering all rates, as well as cut the size of federal agencies and the federal workforce by at least 10 percent in 2012. It would also address Social Security, Medicare and other unfunded liabilities and make sensible cuts to defense spending in the 2012 budget. (Boy, that sounds similar to a plan presented on Monday, doesn’t it?) However, such calls for fiscal solvency have consistently fallen on President Obama’s deaf ears and the GOP’s soft spine, so we two members of the Debt-Paying Generation offer this compromise to our president in the hopes of avoiding otherwise inevitably higher taxes, crushing debt and bankrupt entitlements.
Dustin Siggins is formerly a policy and politics blogger, and is co-authoring a book on the “Debt-Paying Generation” with William Beach of The Heritage Foundation. Michael Knowles is a senior at Yale University and founder of Students For Solvency PAC.