Threading the Policy Needle

Posted by Nicholas Beaudrot of Electoral Math

At the start of the weekend, Ezra asked what the future should look like, and how it would be paid for. Since we live in a bizarro world where proposing a tax increase to pay for things like body armor, rebuilding New Orleans, and medicine is considered unthinkable, I figured I'd start laying out some proposals to restore fiscal responsibility while still leaving enough wiggle room to pay for new projects.

• First and foremost, return to Clinton-era taxation. This is simply a no-brainer; it's abundantly clear that Clinton-era tax levels are perfectly compatible with a robust economy -- tech bubble aside, the late '90s were good years for the working class too. Based on the non-partisan CBO's estimates, government revenue topped out at 20.9 percent of GDP. Now, some of that peak is due to unprecedented increases revenue collected from capital gains tax, but some of it due to run-of-the-mill income taxes too. In practice, total revenues would probably end up closer to 20% of GDP rather than 21%, but that would still be enough to balance the budget. Our government simply can't survive by collecting 16.5% of of GDP; the interest rate revolt will come soon enough.
• Next, reorganize defense/homeland security spending priorities. We've heard the jokes about DHS spending allocation. Wyoming and Alaska get over $40 per capita while New York -- the one place that was attacked by terrorists -- gets around $17 per person. Now, some of this wackiness is due to the presence of critical infrastructure in Wyoming and Alaska, but some of it is pork-barrel politics, pure and simple. Bringing some common sense into the Homeland Security budget might squeeze out $1 billion or two, perhaps a bit more.
  
  But the real money is in the defense budget. How can we maintain our military commitments while keeping the defense budget in line? By slowing the acquisition of new toys, particularly for the Air Force and Navy, while boosting the size of the Army and Marines, who are doing about ninety percent of the work in Iraq. The Navy, for instance, is spending between $4 billion and $20 billion to develop a new plane to hunt submarines. What was wrong with the old one? Do any of the bad guys even have submarines? The Pentagon needs to take a hard look at contracts like this and figure out which assets are likely to be used in an actual conflict or have substantial preventative value. The rest should be cut.
  
  I'm not going to lie; paring back on defense contracts is going to be painful. Large defense contractors have built a web of offices and production plants that cover many, many congressional districts, making it politically difficult to vote against new defense spending. But it's something we're going to have to consider, and we also need to think of a way to sell it politically (I like "Fewer toys. More armor for soldiers", though that may denegrate some weapons a bit too much). After all, the soldiers in Iraq are still short on body armor and armored Humvees, two things they clearly need. I'm okay with not building a new sub-hunter if it means buying more armored Humvees. In exchange, perhaps the Army could start opening up some new bases in districts with lots of defense contractor cutbacks.
• Third, cut 75% of all earmarks from the highway bill and dedicate the savings to Hurricane Katrina reconstruction. Alaska does not need a $1.5 million dollar bus stop, where presumably they can buy a big screen HDTV with a progressive-scan DVD player that runs their $8 million video documentary dedicated to Alaska's infrastructure in a loop twenty-four hours a day. The last highway bill of the Clinton administration had roughly one thousand earmarks; this year's monstrosity has six times that many. Assuming an average earmark cost of $2 million, that only saves $9 billion not chump change, and it will certainly help rebuild Louisiana and Mississippi, but it's going to take more than that to bring the area back to full health. Yes, the highway bill has already passed, but this is the sort of situation that demands for business as usual to stop.
• We're left with two other big ticket items: Social Security and Medicare/Medicaid. Unfortunately, there's just not much that can be done here. Cutting Social Security is bad politics and bad policy, unless you think a high elderly poverty rate is good for the country. And medicare spending has proven to be completely out of control. There's some money to be saved by re-importing drugs and negotiating bulk discounts, but I'm unclear exactly how much savings we could reap just by being less subservient to the pharmaceutical industry more careful with the taxpayers' money. Busting the nurses' union might help control costs, but would only produce ephemeral gains as the drop in salary would eventually lead to a drop in quality.

All in all, I think it's possible to restore fiscal balance and increase the size of the active-duty Army and rebuild from hurricane Katrina without gargantuan tax increases. It doesn't leave enough money for a serious expansion of health care or for a large program in basic energy research. But it's a start.