Both parties have it wrong on debt issue

With the deadline for averting a potential default under a week away, Congress and the President are scrambling to work out a deal. President Obama wants “corporate jet owners” and other wealthy individuals and major corporations to foot the bill in addition to spending cuts, while Republicans abhor the tax hikes and prefer a cuts-only approach. Unfortunately, neither of these plans, nor variants such as the “Gang of Six,” Boehner, or Reid plans will offer the solutions our country needs.

The primary issue with these plans is it focuses on long-term rather than short-term solutions. Since the projected cuts for these plans are over the next 10 years, most of the cuts are likely to be reversed after the 2012 election anyway. The cuts between now and the next election will likely be between $300-600 billion. This means that the annual budget deficit will likely stay above one trillion dollars, and will have no meaningful impact to neither it nor the overall debt.

What we need is a short-term solution that includes both spending cuts and revenue increases. The most obvious place for cuts is defense, where we can withdraw troops from the 130 countries and 700 bases around the world and focus on our own security here at home, particularly at the border and the ports. Many other departments could be downsized or simply eliminated, such as the Departments of Energy and Education. For revenue increases, we need a comprehensive rewrite of the tax code that makes it simpler, fairer, and provides the best balance for revenue generation without an adverse affect on the economy or job creation.

The tax issue is another place where Obama and many liberals are wrong, asking the wealthy to pay higher taxes. The United States already has the most progressive income tax system in the world, so it isn’t as if the rich aren’t paying their fair share. The issue is that too many Americans either don’t pay taxes and/or get more from the government than they pay in. If most Americans were taxed, even only a small amount, it would help them become more cognizant of what the federal government is doing and better informed come election day.

Perhaps most appalling of all is the focus on politics over the issue at hand. Senate Majority Leader Harry Reid and White House Chief of Staff Bill Daley have both indicated that they want the debt ceiling increase to carry them over to the next election. That way, President Obama can do what he wants during his second term on the debt issue if he gets reelected, or simply shift the drama to his Republican successor should he not get reelected.

If I could have it my way, I would cut the deficit by $400 billion each year for four years through a combination of spending cuts and revenue increases. This would result in about a $200 billion surplus. Depending on the economy, I would either hold this surplus or continue cutting the deficit by the same amount to get it down faster. I would set a goal for the average surplus to be $500 billion to cut the debt to zero in about 30 years. With a slight overall surplus (no national debt), I would pass a constitutional amendment banning going into debt. The country could still run a budget deficit when times are tough to boost the economy without crowding out or having to pay interest later. When times are good, the government can run surpluses to save up for future rainy days. This will make the U.S. Treasury, and not China, the lender of choice for the U.S. government. It will also ensure that the U.S. government runs budget deficits responsibly as it can only go until the Treasury reserves are depleted.

In any case, the U.S. government should focus on short-term solutions, rather than (in Obama’s words) kick the can down the road to the future generation of politicians after the next election.

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