SalemNews.com, Salem, MA

April 25, 2013

Watson: A grand bargain requires compromise, fairness

Brian T. Watson
The Salem News

---- — Last week’s column discussed in thematic terms the need for a “grand bargain” on the size and content of the federal budget. This bargain would be all things to all men, and simultaneously, because it would involve significant compromise from just about everybody, it would satisfy nobody perfectly.

The deal would create a 20- or 30-year plan to put the national government on a sustainable financial course while at the same time providing support to those who need it, funding the agencies and obligations of the government, and facilitating the things that the private sector does best. It would select wise, long-term policy goals and integrate economic considerations and quality-of-life considerations into the vision and logic behind the plan.

It would take account of the need for immediate investment and spending by both the public and private sectors, and the need longer-term — after unemployment has been substantially reduced — to have accomplished efficiency improvements to our spending on defense, social programs and other categories of the budget.

Although creating such a plan is a mammoth and daunting task, and looking at the dynamics of the demographic projections through 2035 is enough to frighten us all, there is reason to be optimistic. Already, the federal budget is responding positively to just a few measures we have taken. The combination of raising the top income tax rate and instituting a few other targeted tax increases, implementing some of the sequestration cuts, and decreasing unemployment (thus increasing revenue and reducing social service costs) are already helping the national balance sheet.

There are many other changes we can make to start to flesh out the contours of a smart plan. With regard to defense spending, for example, there is much potential to reduce its cost without damaging our military capabilities. The basic defense and ongoing war budgets — not including veterans spending or Homeland Security — total about $740 billion, roughly 20 percent of the federal budget.

Former Secretary of Defense Robert Gates has estimated that 30 percent of military spending is consumed by unnecessary overhead costs. It will be difficult, but very possible, to improve our procurement, contract administration and budgeting processes to better utilize our tax dollars.

Another significant percentage of military budget savings could be had by improving the firewall between the military’s internal needs analysis and political meddling. Right now, we have a system where every senator and congressman feels obligated to advocate for the highest-possible military spending that can be garnered for his state. We need to use mechanisms — like instituting one base-closing or lost contract in each state simultaneously — so that both politicians and citizens can rise above business as usual.

With regard to Social Security — now solvent to 2036 — we can extend its viability beyond that date by removing the income ceiling (now set at $113,700) beyond which no payroll tax applies. Additionally, we can add more means-testing to various benefits, and we can consider means-testing the retirement age.

Medicare and Medicaid today constitute about 23 percent of the federal budget, and because health care costs overall (public and private) are escalating at inordinate rates, there is great potential for reforms and savings. Part of the answer lies in Obamacare, which includes many measures and incentives designed to reduce the costs of medical care delivery. Several reputable studies have concluded that, possibly, one-third of our public and private health care spending is wasteful and does nothing to improve the quality of care.

So, in addition to Obamacare, there is still room to reduce the share of our GNP devoted to health care. More “accountable care” models, more patient responsibility for cost-consciousness, more competition among hospitals and doctors, and a range of other adjustments (such as halting Medicare payments that indirectly support medical education), are possible.

But I emphasize, the health care delivery system is incredibly complicated, and making it both more effective and efficient will require the commitment of the professionals who work within it.

A grand bargain will include myriad other deals. We should scour the tax code, allowable deductions and subsidies for both potential savings and higher revenues. I’d eliminate most subsidies to the lumber, mining, agricultural, cattle and fossil fuel industries. I’d offer more subsidies to foster the development of green industry and energy. I’d end a range of deductions — especially by utilizing means-testing.

I’d raise taxes on gasoline, soda, tobacco products and carbon emissions, and I’d make major investments in early childhood education, job training, prison anti-recidivism programs (cheaper than jail time), infrastructure (of all types) improvements and mass transit. I’d institute a privately funded infrastructure bank and a financial-transactions fee (coordinated with Europe’s). Short-term, I’d spend money to make jobs — public and private. Getting people working, making money, paying taxes, off assistance and participating productively in the economy is the single most effective thing that we can do.

There are infinite combinations of taxing, spending and cutting to create a grand bargain. The important thing is to construct one with compromise and fairness.

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Brian T. Watson is a Salem News columnist. Contact him at watson@nii.net.