Last week David did part 1 of the review of David Walker’s new book and talked about the reasons why the US will probably no longer be a world superpower by 2040. In this episode we’re going to cover the proposed solutions.
40% of Americans don’t pay any tax at all with 20% of Americans receiving a refundable tax credit. This has been used in lieu of raising the minimum wage.
The federal government forgoes $1.4 trillion in taxes per year in allowable deductions. One solution would be to shore those deductions up. Tax cuts don’t pay for themselves unless they are accompanied by a dramatic spending cut. We can’t grow our way out of the problem with tax cuts. All exemptions, deductions, and exclusions would have to be eliminated.
David Walker also proposes making income tax more inclusive and progressive so that everyone above the poverty level would pay taxes and more people would be invested in the system. It’s not enough to tax the rich.
He also discussed a wealth tax of 2%-3% per year. This comes with a number of details that would need to be hammered out and should be considered alongside eliminating the estate tax.
Broadening the tax base is just the beginning. David Walker had a number of recommendations for spending and the federal budget. The first is if a member of congress doesn’t submit their budget on time, they don’t get paid.
In all but 4 of the last 60 years, Congress has failed to pass their appropriation bills by the end of the fiscal year. This usually results in all these bills being combined into a massive omnibus bill with a number of other pieces of legislation being added in. If the federal government can’t take their budget seriously and get it filed on time, how are they supposed to gain control of their spending?
Whatever changes that will happen will happen under budget reconciliation which doesn’t require a supermajority.
The state of California was having similar problems with their appropriation bills and passed a provision like the one proposed. They have not had a problem since.
The second big pillar is recapturing control over the federal budget. In 1912 the government had control over 97% of their spending, now 71% of the budget is non-discretionary. We are writing a blank check for 71% of the annual budget and have no control over it.
That’s primarily Social Security, MediCare, and Medicaid. The only program that David Walker was reluctant to cut was Social Security since it’s one of the most popular federal programs. We can not put a cap on the interest on the national debt, given enough time the interest will overtake 100% of the federal budget.
We need to change our approach to debt limits. Most industrialized nations have a cap on the debt in relationship to GDP which is something the US should adopt. The debt on its own is not a problem, it’s the debt relative to GDP that’s the problem. Given the scale of the debt, having a 90% cap is more realistic but will still be very difficult to meet.
Any proposed tax cuts or spending increases would have to be offset so that our debt to GDP situation doesn’t worsen.
The time has come for a fiscal responsibility constitutional amendment to keep the debt-to-GDP ratio at a certain level. This is currently the way the states operate and could be applied federally.
These recommendations could help and David Walker has been talking about the federal debt for a long time trying to raise awareness at the grassroots, which is where the will to change has to come from.
The catastrophe of the first half of the book is going to come to pass. The reality of David Walker’s vision becomes more real and inescapable with each year that passes.