America, on a Budget

22 11 2010

About a week ago, the white house released a preliminary plan to help minimize the growth of U.S. debt.

The plan was written by Erskine Bowles and Alan Simpson, among the many suggestions to reduce the financial deficit by $4 trillion over the next ten years, they propose to begin spending cuts in 2012.

In the report, the breakdown their plan, explaining that three quarters of the $4 trillion would be achieved through spending cuts, and the remaining quarter would be from tax revenue.

There are cuts being proposed on defense, including: Freeze noncombat military pay at 2011 levels for three years to save $9.2 billion and reduce overseas bases by one-third to save $8.5 billion.

Other cuts include: eliminating 250,000 contractors which would save $18.4 billion and freezing federal pay for three years which would save $15.1 billion.

Formal recommendations will be made in two weeks on December 1st. Although these recommendations from the 18-member fiscal commission will most likely not be taken on in their entirety, they will at least influence the debates in Congress.

Here are a few other suggestions that are listed in the report for the commission to consider:

  • A cap for taxes at 21% of Gross Domestic Product (Great link that defines GDP)
  • A cap on federal spending to 22% of the economy at first, and then eventually to 21%
  • Lowering income tax rates and simplifying the tax code
  • Increase the age of retirement slowly over the next 65 years, rising from 67 to 69 by 2075. Also, expand how much workers will pay towards payroll tax over the next 40 years so that Social Security doesn’t go bankrupt.
  • A cap on federal health care spending to 1% more than the rate of economic growth. (The economic growth rate measures the change in a nation’s GDP from one year to another. The long term economic growth rate for the United States is between 2-5%, which is average for large industrialized countries.)

Soon we will see what the commission agrees upon or debates about; they vote on the recommendations on December 1st. One thing is for certain though, it is essential that America not continue this pattern of immense debt, and this proposal is a step in the right direction.


Reaching Compromise on Possible Tax Cut Extension

7 11 2010

Over a month ago, I wrote a post about the dilemma Congress has been facing regarding extending the Bush tax cuts (See To Extend, or Not to Extend). Now that the mid-term elections are over, and Republicans have control of the House of Representatives, there is new buzz around the issue.
President Obama has now said he would be willing to negotiate with Republicans to ensure that the tax cuts are extended for the middle class  by January 1, 2011.
As I previously mentioned, the main point of contention is, if there would be an extension, who would it apply to? Democrats have been pushing for no extension or at least only a permanent extension for income of up to $250,000 for married couples and $200,000 for singles. On the other hand, Republicans have been fighting for a permanent extension of the tax cuts for everyone regardless of income.
From the looks of things, many are expecting that the compromise between both party’s agendas will come down to a temporary extension for everyone, as opposed to a permanent one, and rather limiting it to one financial group.
It is estimated that a one-year extension for everyone will cost between $250 billion and $350 billion, which is far less than the decade-long projection of $3.7 trillion if the tax cuts were made permanent.
Extending them temporarily, could help boost middle-income families that are still clawing themselves out of the effects of the recession. It could also provide more time to figure out how to tackle the looming U.S. deficit that is of utmost concern, and a major reason why a permanent extension would be harmful.
What are your thoughts? Should the tax cuts be extended for everyone temporarily, rather than permanently? Or should they not be extended at all?