Fiscal Discipline for the American Dream

Congressman Jason Chaffetz (UT-03) has proposed a Congressional Action Plan (CAP) called the Contract for the American Dream which he is inviting members of Congress and candidates for Congress to sign. While I agree with his CAP generally I thought I would take the time to break out the four sections of the plan and evaluating what I agree or disagree with more specifically. This post focuses on Fiscal Discipline. Later posts will focus on Limited Government, Accountability, and Strong National Defense.

Congressman Chaffetz describes our current fiscal discipline situation as:

Our national debt exceeds $12 trillion, with our annual deficit in excess of $1.4 trillion. Federal spending as a percentage of our Gross Domestic Product (GDP) is roughly 25%, when historically it has been roughly 19-20%. We pay approximately $600 million per day in interest payments. In short, the current government spends too much, taxes too much, and borrows too much of the people's money. It is unacceptable and unsustainable. No longer can we run this government on a credit card. We are not going to borrow and spend our way out of these challenges.

He suggests a goal to work for as:

Imagine a federal government that treats the national treasure with respect and responsibility by living within its means-where every American pays a fair share.

Here are the steps he proposes to achieve that goal:

  • Reduce total federal payroll and workforce by 10%, except for military. This action will force all federal departments to identify and eliminate waste.
  • Support a balanced budget amendment.
  • Require 2/3 majority vote for any tax increase.
  • Cut non-defense discretionary spending by inflation minus 3% across the board.
  • Impose a moratorium on all appropriations earmarks until the process is reformed legislatively. Work to maximize openness and transparency with filters, to ensure only expenditures with a federal nexus, and prohibit allocations to for-profit companies.
  • Reduce the capital gains rate to 10%. This will lead to increased receipts to the federal treasury and will also increase investment in the USA.
  • Engage in entitlement reform.

Here are my thoughts in a point-by-point format:

  • The idea to reduce government spending and bureaucracy is right but he seems to be using a very blunt instrument to perform this surgical operation.
  • Sounds good to me but show me the proposed amendment.
  • I’m not sure what drawbacks this might have.
  • Why 3%? (Plus, show me the math so that I’m clear on the meaning here.)
  • Sounds like politician-speak for “earmarks are bad but we can’t really get rid of them – let me show you that I want to fix the system.”
  • I favor flat tax rates without loopholes – that provides predictability so that people know what to expect on tax day. That certainty allows businesses to more confidently make decisions.
  • Vague but promising.

4 comments for “Fiscal Discipline for the American Dream

  1. Ronald D. Hunt
    January 14, 2010 at 3:13 pm

    “Support a balanced budget amendment.”

    Deficit spending is a legitimate risk management tool, we shouldn’t make it illegal but it definitely needs reform. Attaching debt directly to tax’s so that increases in debt increase tax’s to pay for said debt would be the best approach, This would eliminate Bush style debt and spend foolishness.

    “No longer can we run this government on a credit card.”

    As far as the numbers go we could run a $300 Billion dollar yearly deficit for the next 100 years and it would actually lower the percent of debt to GDP to 4%. Given I am not advocating that we do this, An understanding of the numbers is important.

    “# Require 2/3 majority vote for any tax increase.”

    Worked great for California, their insane tax passage rules are leading the state to a socialist revolution. Their’s a good chance that next year CA will have democrat super majority in both their houses which means the passage of single payer, and an end to the republican lead circus of government cuts no matter the cost.

    Nothing quiet like the tyranny of the minority to rial the people up. This rule will work no better then TABOR and other similar measures have. It ties the hands of the government and makes it hard for the government to change when it needs to.

    “Cut non-defense discretionary spending by inflation minus 3% across the board.”

    This is unnecessary if you implement the below, This issue is a symptom and attacking it will only hide the real problem.

    “Impose a moratorium on all appropriations earmarks until the process is reformed legislatively. Work to maximize openness and transparency with filters, to ensure only expenditures with a federal nexus, and prohibit allocations to for-profit companies.”

    I agree.

    “Reduce the capital gains rate to 10%. This will lead to increased receipts to the federal treasury and will also increase investment in the USA.”

    Capital gains tax was never a good idea in the first place, Its income and should be taxed as such. Right now money made this way is shielded from FICA(social security/medicare) tax’s. And this would not lead to more investment in the USA, it would only lead to increased trading volume on wall street and that only helps the bankers.

    Better approach would be to replace Corporate tax’s with a national sales tax. This would help to keep jobs in America as well create real investment in the states not just increase trade volumes.

    “Engage in entitlement reform.”

    The Corporation needs to be reformed out of the welfare state entirely. Big Business in health care, retirement, etc was is and continues to be a bad thing for the US economy as a whole.

    401K’s, Pension funds, Health insurance have all turned into a tool to steal from the Middle class and corrupt the government through massive amounts of money in Washington.

    I would add to the List Public Funding of campaigns, and the outright abolition of corporate money in the political process.

    Back to CA’s insane tax rules, this is actually an interesting thing to look at, in CA its illegal for property tax’s to increase greater then 2% per year(from what the tax was the previous year not from current property value), new tax’s can’t be passed without a 2/3 majority of both houses and (big one)state budgets can’t be passed without 2/3 majority of both houses. This is due to prop 13 that passed in the 1970’s.

    Now California’s annual budget in 2006 was around $120 Billion dollars, that may seem high but consider that the city’s don’t have large property tax revenues like in most states so the state has to distribute funds to districts in CA for the running of services that would normally be paid for by the city’s. When Arnold toke office their the republicans given their minority control of the budget/tax started cutting things out of the CA budget, in 2010 the CA budget has shrunk to around $86 Billion dollars. However in the process of the forced attrition the Districts and City’s have had their distributions from the state slashed pretty much alienating City and district governments from the State level government and they blame the Republican party for it.

    Their is a very very good chance the CA Democrats will have enough seats to over come the 2/3 majority requirement after 2010, This is going to be interesting to watch one way or the other.

    • January 15, 2010 at 10:08 am

      Thanks for your thoughts Ron, especially related to the 2/3 majority for tax increases idea. I knew there was something about it that did not pass the smell test. I also like that you pointed out that reducing the capital gains tax was likely to increase trading more than really increasing investing. That might not be a bad thing (it might allow investors to more freely move their money from one place to another by lowering the threshold for when it becomes economically advantageous) but we should definitely approach the idea with open eyes.

      I do worry about your suggestion that the corporation should be reformed out of existence. It seems to me that there is a place for corporate entities even if their existence is currently being rampantly abused. So reform, yes; out of existence, not so much.

  2. Ronald D. Hunt
    January 15, 2010 at 1:49 pm

    “I do worry about your suggestion that the corporation should be reformed out of existence.”

    No No that’s not what I meant. I only want them removed from the running of anything related to social welfare, health insurance, retirement, etc. When I use the term “Welfare State” I am merely referring to all types and source of welfare spending(health insurance, retirement, etc) without respect to funding source public or private.

    The health and financial industry, have done nothing but grossly and blatantly steal from the American people, while at the same time using OUR money to manipulate the Politics to further enable this theft. Our 401K’s, Pensions, savings, and Health insurance pools have become the personal piggy banks of the corrupt corporate elite.

    • January 16, 2010 at 6:59 am

      Thanks for the clarification – that makes more sense to me.

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