detail, detail, detail

Americans, in nearly all walks of life, realize that spending by the federal government is wildly out of control. The same standard for managing our household budget does not apply in Washington. Massive deficits are chronic, and government debt and the interest paid on that debt are at an all-time high—a record $37 trillion, or more than $101,000 for every man, woman, and child in America today.

This kind of crushing debt undermines national growth opportunities. It could quickly force the United States into an economic crisis of our own, especially if Donald Trump (not to pick on him alone) in a second-term administration starts a trade war with China, one of our nation’s largest trading partners.

The proper role of our federal government needs to be addressed by national, state, and local policymakers examining what areas of the budget should be left to the states to cover that were not a part of the federalism that the Democratic-Republican Party of old fought when jousting between the Federalists and anti-Federalists in Alexander Hamilton’s and Thomas Jefferson’s day.

Deficits and debts need to be measured and judged as a percentage of our Gross National Product (GNP), which is now approaching 150% and is projected to grow to 300% in the relatively near future. Another useful benchmark is federal outlays in 2024 totaling $6.5 trillion, estimated to be 23.1% of U.S. Gross Domestic Product (GDP).

America needs to cut spending, reform the tax code, and support more vigorous economic growth as measured by GNP and GDP, thus reducing interest costs on the debt and lowering costs for families.

Americans in polls tell us they favor an increase in social security benefits, education, infrastructure improvements, environmental protection, and scientific research and want a cut in foreign aid.

However, Democrats in Congress have not been interested in prioritizing balancing the budget or deficit reduction. 

Republicans in Congress, for their part, want deep cuts in Social Security (a proposed 4% cut) and Medicare (a proposed 21% cut), Medicaid (a proposed 49% cut), non-defense reductions in farm subsidies, environmental protection, transportation, medical research, and homeland security (a proposed 60% cut), veterans’ health, law enforcement and research (another proposed 49% cut).  Those Republican recommendations come directly from the Republican Study Conference in Congress.

In Context

The Congressional Budget Office tells the American public the following about federal spending and deficits:

• “The deficit totals $1.6 trillion in fiscal year 2024, grows to $1.8 trillion in 2025, and then returns to $1.6 trillion by 2027. Thereafter, deficits steadily mount, reaching $2.6 trillion in 2034. Measured in relation to gross domestic product (GDP), the deficit amounts to 5.6 percent in 2024, grows to 6.1 percent in 2025, and then shrinks to 5.2 percent in 2027 and 2028. After 2028, deficits climb as a percentage of GDP, returning to 6.1 percent in 2034. Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007–2009 financial crisis, and the corona­virus pandemic.

• “Debt held by the public increases from 99 percent of GDP at the end of 2024 to 116 percent of GDP—the highest level ever recorded—by the end of 2034. After 2034, debt would continue to grow if current laws generally remained unchanged.

• “Outlays in 2024 amount to 23.1 percent of GDP and stay close to that level through 2028. After 2028, growth in spending on programs for elderly people and rising net interest costs drive up outlays, which reach 24.1 percent of GDP by 2034.

• “Revenues amount to 17.5 percent of GDP in 2024, decline to 17.1 percent in 2025, and then climb to 17.9 percent of GDP by 2027 after certain provisions of the 2017 tax act expire. Revenues remain near that level through 2034.”

The Biden Administration

In his FY25 budget proposal to Congress, President Joe Biden and his White House team want to:

• Grow the economy from the middle out and bottom-up, they say.

• Invest in America.

• Lower costs to families.

• Reform the tax code to reward work, not wealth, in part, by applying a 15% minimum tax on large corporations, a 25% income tax on billionaires, raising the multinationals’ tax from 10.5% to 21%, eliminating tax subsidies for oil and gas, and not permitting tax subsidies for cryptocurrency companies.

All well and good, except one must ask where these proposals stack up when talking the talk and walking the walk.

An Alternative Approach

We take a different approach, starting with the following non-starters:

• Across-the-board budget cuts do not work.

• Cuts in Social Security benefits, including for high-wealth earners, are unacceptable.

• There should also be no cuts in Medicare benefits, including for high-wealth earners.

• No reducing military spending or military member benefits.

• No reductions in military veterans’ benefits either.

• No undercutting climate and environment protections and innovations.

• No reduction in law enforcement or homeland security programs, including federal initiatives that may result in defunding police.

So, with that said, where can the budget be cut, the deficit reduced, national economic growth encouraged, and middle-class families better protected, in detail?

• First, we would eliminate the U.S. Department of Education and shift its programs to the states where education policy more rightly belongs and is not, therefore, duplicative. This would represent a $75 billion savings on an annual federal budget of $83 billion-plus.

• Next, merge the Small Business Administration with the U.S. Department of Commerce.  Twenty-eight million small businesses are critical to the lifeblood of the American economy and jobs. Still, they are unacceptably over-regulated and should be equally important to larger commercial business enterprises in America.  This would represent an $800 million savings.

• Capping Medicaid benefits per state but keeping the federal matching rates would result in a $50 billion savings.

• Eliminating the mortgage interest deduction but providing a 15% refundable tax credit on up to $300,000 of mortgage principal would save $30 billion annually.

• Privatizing the U.S. Department of Transportation for ground transportation, fees, tolls, and wiser transportation infrastructure investments supported by public-private-philanthropic partnerships would yield $30 billion in annual savings.

• Applying a carbon tax would generate $19 billion in new revenue.

• Require the U.S. Department of Health and Human Services to fix the fee per beneficiary to cover spending and thus treat the disease, and not each healthcare provider's service to a patient would save $10 billion.

• Having the U.S. Department of Housing and Urban Development pool housing finance assistance with public-private-philanthropic partnership initiatives would save $10 billion.

• Privatizing the U.S. Department of the Interior parks and recreation programs with a social benefit cap on profits would save $10 billion.

• Privatizing Amtrak and other rail subsidies through the U.S. Department of Transportation would save $7 billion.

• Cutting foreign aid by 25% and targeting consistent, rational standards for when and why foreign aid is granted will yield $5.5 billion in savings.

• Ending the U.S. Department of Labor employer training programs and leaving that to state discretion for competitive enterprises would save $4.9 billion.

• Ending oil and gas subsidies through the U.S. Department of Energy would save 4.1 billion.

• Ending telecom subsidies would save $3.6 billion.

• Ending the U.S. Department of Justice state & local discretionary grants would save $2.6 billion.

• Adding a U.S. Department of Labor immigrant visa fee through employer applications would generate $1 billion.

The total amount saved from budgetary changes is estimated to be $267.4 billion.

Adding economic growth from the GNP and GDP perspective:

• Additional investment in NASA would yield $7 for every $1 invested, generating higher-paying wages and income and corporate-generating tax revenue each fiscal year.

• The Medical Innovation Zone/American Transformational  Innovation Trust proposal we have advanced would generate far greater revenue from public-private-philanthropic partnership investments, manufacturing, energy, the trades, immigration jobs, and improved exports versus imports.

• The flat fair tax proposal we advocate might generate $1.47 trillion if there is a maximum 1% flat tax on individual income, with the average household income being $74,580 and 131.3 million households in America.   This flat tax would take the burden off the middle class for generating income-related revenue, make the wealthy pay an equal percentage of their income, and assure that those under the federal poverty rate are paying $0 in taxes until they earn a higher income.

• Payroll taxes would remain the same for Social Security and Medicare.

• Capital gains and inheritance taxes would be limited to ten percent or eliminated if revenues permit.

• An estimated $650 billion in corporate taxes would be realized by adopting a reasonable corporate minimum tax on adjusted gross profits on all U.S. and multinational operating companies, raising $1.12 billion in revenue.

• That said, this new plan might expect to generate:

  • $1.46 trillion in flat fair tax revenues.

  • $1.66 trillion in current payroll tax revenue.

  • $1.22 trillion in corporate tax revenue.

  • $234 billion in current other tax revenue.

  • $1.8 trillion in economic growth-related tax revenue.

  • Yielding $6.374 trillion in tax-related revenue.

If current budget outlays of $6.5 trillion are reduced by $267.4 billion in proposed budget cuts, outlays would then be $6.23 billion offset by $6.37 billion in revised tax-related revenue, balancing the budget under current circumstances.

Cost reductions for families would come, under this plan, in the form of:

• Tax relief

• Food prices

• Pharmaceuticals expenses

• Medical expenses for related services

• Energy efficiency

• Housing credits

• Education credits

• Transportation

• Charitable credits

Of course, we know that reducing the budget deficit with program cuts and federal agency consolidations, reforming the progressive tax code with a replacement fair flat tax, increasing U.S. economic growth, and reducing family costs will take time.  We also know that the comprehensive budget and tax reform proposed here will be subject to give-and-take in the legislative process.

Even if some of these proposals do not hold, then there are a mountain of other budget reduction options available to consider.

Either way, this proposal is a starting point for serious fiscal policy debate in 2024 and beyond, and it needs to begin in earnest now.  It is long overdue, as Congress has so aptly proven with recent budget and appropriation actions or inactions that have so far not benefited the American public.