How much does the payroll tax cut cost?
About $20 billion for two months and $120 billion for a full
year.
How much do the Bush Tax Cuts cost?
About $400 billion annually.
Why are the Republicans demanding the payroll tax cut be fully
paid for?
The easy answer is to keep the deficit from increasing but there
was no such demand for the Bush tax cuts.
What do the Keystone Pipeline, a freeze on Federal workers pay
and cuts to regulation have to do with the payroll tax cut?
Nothing, but this is what the Republicans are demanding for a
full year extension of the tax cuts. This is why the Senate adopted
only a two-month extension until these issues could be resolved. I
believe they should be resolved on their own merits with an up or
down vote on each issue.
Is this a jobless economic recovery?
Not really. Private payroll employment has increased by 2.95
million since employment bottomed out in February 2010. During the
last recession employment bottomed out in September 2002 and it
took until June 2005 for the economy to add 2.95 million jobs.
Admittedly the 2008-2009 recession was a much more severe recession
than the previous one and normally one would expect faster
employment growth. One difference this time is that government
employment has declined by 1 million since the May 2010 peak while
government employment changed little during the last recession.
Can Ron Paul Cut $1 trillion out of the Federal Budget in the
first year as he claims if he is elected President?
Not in your dreams or more appropriately, your nightmares. This
is a simple question but the answer is a little complex. One has to
look at the composition of Federal spending.
Interest on the debt- $264 billion
Social Security- $727 billion
Veteran's Support- $63 million
Military and Civilian Retirement- $141 billion
Interest on the debt could not be reduced and Social Security
costs could not be reduced in year one unless benefits to current
recipients were cut, which no one would support. Retirement costs
could not be cut in year one and it is unlikely that veteran's
benefits could be reduced at all. These costs are going to rise
significantly in future years due to all the soldiers wounded in
Iraq and Afghanistan.
Medicare- $572 billion
Medicaid- $273 billion
The costs of programs are increasing because of rising health
care costs and increasing caseloads. Keeping costs unchanged
requires cuts of up to 10%. But let's assume that overall costs
could be cut 10%, which would be very difficult- the savings would
be about $85 billion.
Defense- $710 billion
Defense is already scheduled to be cut and you are hearing the
screaming already. I don't see how cuts of more than $100 billion
are feasible but Ron Paul might argue for more as he wants to
sharply reduce our military commitments.
Income Support- $343 billion
This includes programs such as unemployment insurance, child
nutrition, and aid to low-income families.
Given the state of the economy and the rising poverty rate,
large cuts would be very difficult. A 10% cut would save about $34
million.
Rest of Budget- $563 billion
This includes funding for the rest of government such as for
Justice, courts, health research, state, national parks,
environment, aid to state and local governments, etc.
If we assume a draconian cut of 25%- highly unlikely -the
savings are $140 billion.
The total savings from all these cuts is $359 billion and it
would be quite painful. The actual cuts would actually be higher
because of inflation such as rising health care and energy costs,
aging population, and increasing caseloads due to the weak
economy.
The U.S. already spends less than most all other developed
nation. Only two OECD nations have lower taxes than the U.S.,
Mexico and Chile. Cutting $1 trillion from the Federal budget would
move us a long way towards becoming a third rate nation.
Is the Federal Budget Facing Huge Deficits Well Into the
Future?
No. The CBO is projecting a deficit of "only" $205 billion in
2015. This assumes normal economic growth and the expiration of the
Bush tax cuts at the end of 2012. Assuming CBO's projections are
accurate, only relatively modest budget cuts would be required to
balance the budget. However, funding issues for Medicare and Social
Security would still need to be addressed.
Robert Kleine
December 22, 2011
