Debt reduction versus government reduction

posted at 5:41 pm on December 1, 2010 by J.E. Dyer

It isn’t surprising, when you think about it, that the president’s debt-reduction commission has come out with a plan that proposes to inflict the greatest pain on contributor benefits (Social Security and Medicare), household budgets, and national defense. The commission was asked to propose ways to reduce debt. It wasn’t asked to rethink the size, scope, or charter of government.

If the latter had been its assigned objective, the panel might have come up with proposals that don’t concentrate most of the pain of sustaining our current level of government on middle-class household budgets and small businesses. There is no question we need to deal with our spiraling debt, but what the debt-reduction panel has published today is a good example of an outcome based on biased assumptions.

The panel was obviously willing to rethink some assumptions: those about the economic lives of American households and small businesses. Eliminating the mortgage deduction – even just for mortgages over $500,000 – and raising the gas tax by 15 cents per gallon will have their biggest impact on middle-class households. So will delaying eligibility for Social Security, and means-testing to determine the level of benefits. So will taxing employer-provided health insurance as income. So will reducing Medicare benefits. Each of these measures by itself digs deeper into a household’s current income; added together they are likely to begin limiting many Americans’ lifestyle options, in such basics as the ability to own a home and send children to college while saving for retirement and medical expenses. They have the power to change what it means to be “middle class” in America.

This is a great deal to ask of the people. It would be one thing to ask it while reducing government, its role in the people’s lives, and its role the U.S. economy as a whole. More Americans every day, for example, are willing to consider restructuring Social Security: to eventually phase it out or make it entirely a means-tested program for the lowest-income retirees. But the “government-restructuring” aspect of debt reduction clearly came in for almost no rethinking at all. The debt-reduction panel proposes mainly to cut federal spending to pre-2008 levels and set spending caps for the federal agencies, at least through 2020. It also suggests eliminating agricultural subsidies. I can support both these recommendations, but they don’t go far enough.

Virtually all the federal agencies would remain in place. Entities like the Environmental Protection Agency, the Departments of Education and Health and Human Services, and the Food and Drug Administration would retain their current portfolios to regulate, litigate, and spend federal tax dollars in ways not envisioned by their charters from Congress. Ukases from the federal regulatory agencies have a significant and growing impact on the people in their economic lives, something small businesses have dealt with for years and individuals are now beginning to understand.  Declining to eliminate or restructure them is a decision about economics – and it will affect the willingness of the people to suffer in tackling federal debt.  And it should.

A debt-reduction proposal that will make it difficult – perhaps impossible – for many people in their 20s and 30s to buy homes, while leaving them to contemplate how federal regulators are driving their utility and health-insurance bills up, is not a proposal likely to keep Americans feeling positive about their estate as citizens. The model of government by which federal agencies prescribe to us what a middle-class lifestyle consists of, and confiscate from us whatever we have above and beyond that, is only a philosophical half-step away at this point. The people are absolutely right to view this prospect with disapprobation and resentment.

Members of the public who object to the proposed measures will be denigrated as whining and irresponsible. Some of them probably are. But that’s not the point. The point is that, in the debt-reduction panel’s plan, gouging American households to pay down the debt is being done instead of reducing the size of government.  We should eliminate whole federal agencies and many pounds of regulatory tomes before we ask Americans to choose between saving for retirement and buying a home, or between paying for medical care and sending kids to college.  Life by itself imposes choices on us; but when government gets into the business of picking and choosing, or forcing canned choices on us, the silly, subjective question of who’s “being a big baby” actually starts infecting our political decisions.  That is 100% detrimental to communal life.

Our contributor benefits are unsustainable. But they are part of a larger problem of unsustainability created by holistic, prophylactic government. We could actually afford both Social Security and Medicare a lot better if government regulation weren’t actively suppressing business formation today; if government regulation didn’t drive every aspect of the cost of medical practice up; if government regulation didn’t drive consumer prices up and make COLAs necessary; and if government regulation didn’t divert so much worker compensation from worker income to employers’ other mandated, per-worker remissions (non-Social Security/non-Medicare) to the government.

A presidential debt-reduction panel should not be proposing to us that Americans accept a reduced lifestyle so that the current footprint of government doesn’t have to change. As we say in the military, that’s bass-ackward. It’s what this panel has just done. I’m sure the panel did what it was asked to do, but it was asked to do the wrong thing.

J.E. Dyer blogs at The Green Room, Commentary’s “contentions” and as The Optimistic Conservative.  She writes a weekly column for Patheos.

This post was promoted from GreenRoom to HotAir.com.
To see the comments on the original post, look here.


Related Posts:

Breaking on Hot Air

Blowback

Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.

Trackbacks/Pings

Trackback URL

Comments

I think it is addressing the right problem and I would hope that many of the suggested measures get put up for a vote. Government is more likely to shrink when people are paying for the full cost of the services and benefits they receive. To date both parties have abused the system by promising tax cuts while raising spending and the American public have fallen for it for a few decades now.

lexhamfox on December 1, 2010 at 5:34 PM

They have the power to change what it means to be “middle class” in America.

Yes, and this is exactly what they were aiming to do– With their brand of debt-reduction, the middle class will be a whole lot lower. They’re determined to get the money for their reckless spending out of our pockets, while continuing to expand an already bloated government.

anXdem on December 1, 2010 at 5:38 PM

Let me be the first to say… TOLD YA SO

how’s that 13 dollar stimulus work’n out for you now

roflmao

donabernathy on December 1, 2010 at 5:44 PM

This is what wealth re-distribution looks like, folks.

BobMbx on December 1, 2010 at 5:44 PM

Years ago when I was in 3rd world countries. There were 2 ways out of poverty. The military and Government work. Now looking at the salaries that Bureaucrats in this country make. It appears to be nothing more than a prelude to the coming banana republic of America

roflmao

donabernathy on December 1, 2010 at 5:49 PM

Front page of drudge:

US taxpayers on the hook to bail out Europe.

We are so boned, it’s hard to find words to describe it.

Rebar on December 1, 2010 at 5:52 PM

The only way to even begin of thinking about eliminating any government agency starts with witholding money from that agency, and only the House of Representatives can do that. Simply refuse to fund action “X” by the EPA, and action “X” can’t be conducted by the EPA. Simple really when you think about it. However, every single branch of the Fed will fight tooth and nail to prevent that from happening, and everyone from Obama on down will be clamoring for an Omibus bill that lets them get around funding restraints. And expect the White House to attempt an EO to try to get around it with tons of resulting legal challenges, but ultimately, only the House or Representatives can obligate money per the Constitution.

Same as the fight Congress is having with the Pentagon on the GE engines for the F35. The Pentagon does not want the second engine but Congress is larding up the pork and making the Pentagon buy the second engine, over their very robust complaints.

Johnnyreb on December 1, 2010 at 5:54 PM

The Pappy Plan…….

2 simple steps to get our Fiscal house in order.

Close the Border…..and cut all Federal Spending 10% across all….ALL…..departments.

Problems solved.

PappyD61 on December 1, 2010 at 6:12 PM

BIG government is never the problem in Washington; the problem is citizens complaining about how much is taken from them in the form of taxes and regulatory “fees”.

GarandFan on December 1, 2010 at 6:17 PM

I note the growth of government still reaches for the sky.

Only the people pay.

tarpon on December 1, 2010 at 6:17 PM

The goal is to third-world us all. Success is an embarrassment to the America and freedom hating one-world types. How dare we have done it without them…

Don L on December 1, 2010 at 6:24 PM

BRAVO!, J.E. Dyer.

A succinct and comprehensive analysis and conclusion.

I nominate you to write a TEA Party platform.

But you know the predictable, hackneyed attacks from the Left at any suggestion of shrinking gub’mint: “you hate kids, education, old people and you’re a racist, etc., blah, blah, blah.”

Status quo.

locomotivebreath1901 on December 1, 2010 at 6:27 PM

A debt-reduction proposal that will make it difficult – perhaps impossible – for many people in their 20s and 30s to buy homes

Sorry, but I strongly disagree. Removing the interest deduction will result in homes becoming less expensive. Right now, the deduction serves as a form of subsidy for home owners. Just as the cost of college goes up as the government makes more funding available to students. The ridiculous tax code we have is chock full of market-distorting provisions. In fact, just abut every deduction has the effect of make the us less free and the market less efficient (making us all less prosperous).

MJBrutus on December 1, 2010 at 6:32 PM

Nail. Head.

Red State State of Mind on December 1, 2010 at 7:06 PM

All good points J.E.

I see this frequently, the elites of the business world asking the wrong questions, then asking for a focused answer on those questions, not wanting any third party recommendations, follow up questions, nor answers to unasked questions.

And so they get the answers that they don’t want to hear half the time, or even worse, keep asking for more and more data hoping to find some nugget of reprise for their particular pet question/project.

Maybe, just maybe, one day they’ll find out that you learn a lot more from people close to the action if you give them a broad scope of questions, the nuggets being what they didn’t think or want to ask.

Robert17 on December 1, 2010 at 7:25 PM

Eliminate unneeded government departments;

Dept of Education
Dept of Labor
Dept of Commerce
Dept of Agriculture
Dept of Energy
Dept of Housing and Urban Development

to name of few.

Dasher on December 1, 2010 at 7:40 PM

JE, I agree with your view that the point should be to reduce the growth of government, not just to reduce debt. If the goal is just reducing debt, then raising taxes is as “good” as reining in runaway cost growth. But I strongly disagree with much of your piece, and I would make the following points:

1) The main reason that government is growing is entitlement programs, with Soc Sec and Medicare being the biggest. You can’t meaningfully slow the growth of government without taking those on.

2) One big reason that these programs grow so rapidly is that the left has succeeded in getting the middle class to buy into their expansion; fiscal conservatives just play into that game by holding that “middle class” benefits should be off the table.

3) It’s simply untrue to say that Soc Sec, for one program, becomes significantly more affordable with more rapid econonic growth. Both the revenue base and the benefit formula grow with national wage growth. Faster economic growth creates more revenues but also more benefit obligations. In order for economic growth to actually help make Soc Sec more affordable, its benefit formula would have to be redesigned.

Chuckles3 on December 1, 2010 at 7:42 PM

So will delaying eligibility for Social Security, and means-testing to determine the level of benefits. So will taxing employer-provided health insurance as income. So will reducing Medicare benefits. Each of these measures by itself digs deeper into a household’s current income; added together they are likely to begin limiting many Americans’ lifestyle options, in such basics as the ability to own a home and send children to college while saving for retirement and medical expenses.

Actually, two more points:

4) The commission didn’t propose “means-testing” Soc Sec benefits. They proposed making an already redistributive benefit formula marginally more redistributive, but that’s conceptually different from means-testing.

5) The quote from your piece above highlights another place where we fundamentally disagree. Cutting the growth of Social Security benefits doesn’t “cut into” middle class incomes. Social Security’s books must be balanced no matter what, by necessity — it’s a zero-sum game; every Social Security check the government sends comes from the pockets of some taxpayer. So one way or the other, its income and its expenditures are inevitably brought into line. Leaving a huge imbalance on the books doesn’t in any way improve individual treatment under the program — it just fails to disclose who will foot the bill for the payments when due. Slowing the growth of system costs represents an explicit decision to balance the books on the outlay side rather than by raising taxes, but it doesn’t itself increase “middle class sacrifice” — the toll of the current imbalance will manifest itself to taxpayers whether it is reasonably planned for or not.

This is one of my biggest points of frustration in the public debate. It’s just wrong to suppose that somehow balancing Social Security’s books “introduces” pain — because it’s wrong to believe that the government can promise benefits without collecting an equal amount of tax income. If balancing the books “introduced” pain then the logical course would be to run as big an imbalance as is possible, with no limit on benefit promises.

Chuckles3 on December 1, 2010 at 7:50 PM

I remember a saying from a few years back, “I know you think you heard what I asked, but what I asked was not what you heard”.

sumpin likka dat iss applicable here.

Johnnyreb on December 1, 2010 at 5:54 PM

“The only way to even begin of thinking about eliminating any government agency starts with witholding money from that agency, and only the House of Representatives can do that.”

Are you sure that’s the only way?
Does any agency include the Treasury Department?

OkieDoc on December 1, 2010 at 9:40 PM

MJBrutus on December 1, 2010 at 6:32 PM

Most people don’t have any idea that each and every one of the tax loop-holes in the tax code was put in there because some lobbyist got the congress critters to sellout the other taxpayers so they could get a break. The big plus is the congress critter also got a big donation to his/her re-election warchest and at some point in the future the congress critter(s) can castigate, demonize and vilify those evil tax loop-holes and make him/herself look like they are interested in the taxpayers, when they are just concerned about getting re-elected.

belad on December 1, 2010 at 10:00 PM

OK here it is
Step one take money from right pocket.
Step two put money in left pocket.
Step three yay you have more money!

The Expert Knows

HAExpert on December 2, 2010 at 12:03 AM