We have made huge strides to cut the budget deficit and have succeeded brilliantly! Brilliantly! It was the one thing Congress got right even though they hated one another for doing it. Have we gone far enough?
Should we have another round of sequestration? It’s a fair question to ask in light of the current deficit data.
This year, the federal deficit has dropped by about 40 percent, from about $1 trillion to $600 billion. Over ten years, the deficit is slated to be $6.4 trillion, down from over $10 trillion estimated a year ago.
What caused this good news? Liberals who wanted tax hikes? Conservatives who wanted spending cuts? The answer, as is often the case, is both!
Here’s the breakout according to the Congressional Budget Office:
DEFICIT REDUCTION FOR 2013
Due to increases in tax rates = $100 billion
Due to growth-caused increase In tax revenue = $100 billion
Sequester spending cuts = $100 billion
Cuts in Fannie Mae spending = $100 billion
DEFICIT CUT FOR 2013 = $400 billion
Before the progress of 2013, the deficit was running at 7% of GDP. Now it is down to 4%. Over the decade, the proportion of the GDP spent on the deficit has dropped from 5% to 3%.
A deficit in the 3-4 percent range is no great threat to our economy or our fiscal policies. It is about equal to the average deficit of the past twenty years.
So before we trigger another river of blood in Washington by insisting on sequester cuts, lets look at how we have brought down the deficit. We have lowered discretionary domestic spending to levels at or under the Clinton years. Its hard to argue that we need to do more.
What is needed is tax reform. Cut tax rates and pay for the reductions by cutting deductions and loopholes.
How will we get past the special interests whose lobbyists will battle against eliminating the deductions?
We should create an option for taxpayers to choose. Just as lower income tax filers can choose to file a short form, so we should now give all taxpayers the option of paying a flat tax rate (which can be progressively graduated) but agree, in return, not to file for deductions. At first, many taxpayers will insist on keeping their deductions. But, soon the ability to live an IRS-free life will prove so attractive and the difference between the flat rate and the rate with deductions so minimal that almost everyone will file the flat rate form.
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