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Monday, August 1, 2011

The Bad Deal and a Hoped for Better One

When it seems to me most urgent that we have a renewal of the New Deal, the president has agreed to 2.5 trillion dollars in cuts over the next 10 years. The good news is defense is on the table. The bad news is domestic discretionary spending is on the table to the tune of half of those cuts. Considering the fact that military spending far outweighs domestic discretionary spending, this is a regressive deal.

A super committee is responsible for writing the details of this deal and that raises some serious constitutional questions. Whether any new revenue will ever be raised to contribute to this reduction remains to be seen but given that 50% of the super committee will be beholden to the tea party, we can all but be assured that progressive tax adjustments are out of the picture.

Given this bad deal, let us imagine a coalition of progressives and libertarians offering an alternative. First, match the maximum size of these cuts and then double it. That's 5 trillion dollars. Lets take 4 trillion of that from projected defense and security spending and 1 trillion from domestic spending. Next, apply half of that (2.5 trillion again) exclusively to debt reduction. Take the other 2.5 trillion and reallocate that toward domestic spending. Use half of that (1.25 trillion)to shore up Medicare and Medicaid and distribute the other 1.25 trillion dollars to the states according to population. Allow the states to do with the money exactly as they please.

This would mean that the federal government would be reduced in spending power by 3.75 trillion over the 10 year period and that states in desperate need of cash could pay teachers, police, etc. or simply put it in a rainy day fund if they thought their spending levels were sufficient or even give it back to their residents in the form of tax breaks.

Such a deal would satisfy libertarians in that the overall size of the federal government would be significantly reduced. With the federal government spending less, it borrows less and frees up capital for private enterprise. Additionally, this deal would go a long way toward satisfying the libertarian belief that constitutionally states (rather than the federal government) are allowed to make decisions according to their respective constitutions concerning government spending on education, transportation, etc.

It would further be an opportunity for libertarians in their respective states to prove that the states can do a much better job with domestic priorities. And for the more lustful of the laissez faire, here is their opportunity to have more influence in reigning in all levels of government spending and returning money to tax payers.

This may not sound like a fair deal to progressives so far, but we might  want to consider that shoring up Medicare and Medicaid might be an opportunity to expand these programs, moving us closer to a real universal public option, if not a single payer system.

Additionally, each state could take its share of the 1.25 trillion and use it to build high speed rail and other forms of public transportation and update the technology and infrastructure of its public schools while paying teachers in a manner worthy of their high calling.

Given that the more progressive states are also generally the more populated states, the prospect for proving our progressive ideas work best for the most people will be greatly enhanced. It may be better to provide funds in this manner than if we left this up to a minority controlled Senate and a reactionary House.

One final aspect of this agreement would be to replace our current income tax system with a much more steeply graduated progressive consumption tax http://economistsview.typepad.com/economistsview/2007/10/robert-frank-we.html . Any new revenues gained from this or any other reform in the tax code could be used exclusively for paying down the national debt or according to the above formula as congress and the president see fit.

This satisfies libertarians by removing income and savings from being taxed and shifts taxation in a voluntary direction based on how much one spends. It potentially could shift more money away from the government and toward the private sector by the former paying down its debt faster.

For progressives, if a progressive consumption tax were passed, it would be much more progressive than our current system and rectify the general perception that Democrats are aiming to exclude everybody each time one of its functionaries mentions targeted tax relief.

For both libertarians and progressives such a deal would be significantly better than the one in the works. For realistic libertarians and progressives, this would mean that they both have to put aside their penchants for political purity and be willing to vote and to act in unconventional ways in the upcoming election.

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