Hidden Utility of Paul’s Balanced Budget Plan

Hidden Utility of Paul’s Balanced Budget Plan

View: Hidden Utility of Paul’s Balanced Budget Plan – Bloomberg.

When told that the U.S. deficit is now $1.3 trillion, the majority of voters enthusiastically embrace the need to cut, cut, cut. But they balk when asked to name specific programs to downsize or lop off.


That’s why U.S. Representative Ron Paul, the libertarian seeking the Republican presidential nomination, performed a valuable public service this week when he unveiled a budget plan that shows exactly what balancing the $3.8 trillion budget through spending cuts would look like.


In broad terms, Paul (whose chances of making it to the White House are beyond remote) would force Americans to confront their contradictions by slicing $1 trillion from the budget in his first year in office. He would eliminate five Cabinet-level agencies: Commerce, Education, Energy, Housing and Urban Development, and Interior. He would end the Transportation Security Administration. He would pare back most other programs to 2006 spending levels, before the financial crisis and the recession pushed up spending by the trillions.


President Paul would also starve the revenue side of the ledger. Corporations would see tax rates drop to 15 percent from 35 percent. He would extend all the Bush-era tax cuts, abolish taxes on estates and investment income. He wouldn’t end Social Security, but he would let young people opt out of the retirement program. As for that $1 trillion sitting in the overseas bank accounts of U.S. corporations, Paul would allow the money to come home tax-free.


Such radical reductions in revenue would make it hard to run the vast federal bureaucracy. True to his libertarian principles, Paul takes care of that problem by trimming the federal workforce by 10 percent — and giving it far less to do. He would, for example, seek to repeal both the Dodd-Frank financial reform law and President Barack Obama’s Affordable Care Act, along with eliminating many environmental and other federal regulations.


What’s wrong with this? It doesn’t take much work to paint a dystopian picture. Let’s begin with a simple example. Without an Interior Department, there would be no agency to oversee national parks, federal lands and offshore drilling. Land would have to be auctioned off to the highest bidders, most likely oil-and-gas, coal and timber companies. The states would inherit Teddy Roosevelt’s national parks, but imagine how Yosemite would fare if it suddenly became the ward of strapped California.


Or let’s imagine another scene from Mr. Paul’s America. Each state would have to become the regulator of its financial, manufacturing and health-care industries. A patchwork of rules would result. States might soon engage in a dangerous game of regulatory competition: Some would ease rules to attract businesses, forcing those seeking to protect the health and pocketbooks of residents to lower their standards — or lose jobs. Illinois might choose, say, to let manufacturers dump waste in the Mississippi River. What recourse would downstream Missouri, Tennessee or Louisiana have if their drinking water became polluted?


Or let’s simply consider what would happen if the under-30 crowd stopped contributing to Social Security: The pay-as-you-go system would dry up, depriving today’s retirees of benefits. About 25 million elderly households now depend entirely on Social Security for income, leaving them unable to buy food or pay heating bills.


Low-income families would be hit the hardest. By converting Medicaid into a block grant, Paul would freeze what is now a $285 billion program at $186 billion from 2013 to 2016. He would do the same for food stamps, now a $58 billion program; it would be downsized to $30 billion four years in a row.


Why, for instance, is it necessary to balance the budget in three years? Most economists say a sounder approach would involve spending more — yes, more — for the next few years to keep the fragile recovery on track, and focusing on budget cuts in the medium term.

NeilS — Ron Paul, bless his heart.  At least he doesn’t spit venom all over the other candidates like they so much like to do.  In any case, it is clear that closing a deficit of nearly 1.5 trillion in a 4 trillion dollar budget is virtually impossible with spending cuts alone.  Ron Paul has shown us what it looks like, and I don’t think it is generally what the American public wants.

To be perfectly honest, almost all economists familiar with a deleveraging, bubble-bursting recession realize that you have to spend more government money to keep the economy chugging in the short-term.  Then you pull back the reins when the economy is moving again and you raise taxes to close the deficit.  Sure, you can even raise them in a “broad-based” way if you want to call raising taxes on millionaires “class warfare.”  In any event, taxing just millionaires is not nearly enough to bring down our deficit to sustainable levels.  Eventually we will all need to contribute in some way.

Strangely, it seems that the silent majority of Americans are not being heard.  What we all really want is compromise.  I talk to people left, right and center, and they all agree on some level of short-term government spending on education and infrastructure, but somehow everything has become so binary.  Tax the rich!  No stimulus!  We must balance our budget! No more war!  All or nothing on abortion!  All or nothing on illegal immigration!  Get rid of the Fed!  The reality of it is that most Americans want some kind of compromised solution, but when politicians pander to their base that contribute the money, the majority voice can get washed away.

One thing is for sure, if we take a page out of Ron Paul’s book and decide to contract the government, which composes some 38% of our economy, we will contract GDP and growth at the absolute worst time.