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Tuesday, October 25, 2011

Deficit reduction plan - centered, sensible, reasonable

Updated November 29, 2011

Deficit reduction plan

Common Sense: A Centrist Approach to Reducing Our Deficit to Create a Stronger America
What is a family to do?
Let’s look at our American family’s budget for next year. The Federal government’s revenues (e.g., taxes and other income generating sources) are estimated to be $2.6 trillion. Its budget (how much it is budgeted to spend) FY 2012 is $3.7 trillion. This means that we are planning for a $1.1 trillion shortfall next year. This is how far out of line is our American family’s budget, and this is why it is essential to look at the expense side and the revenue side to begin to develop a realistic plan to balance our books.

We must lower the amount that government spends. Significant cuts should take effect in the very next fiscal year, and ongoing. The markets will react favorably to real action. We must make government smaller. We proposal $2 trillion in cuts in a most reasonable, sensible fashion, below.

Likewise, tax hikes should be levied on all tax payers, including individuals and corporations, social security holders, and excise taxes, with allowances for citizens who have been underemployed or unemployed during the fiscal year. Revenue generated must go toward paying down our debt. We propose $2 trillion in revenue increases, including across the board 1% tax hikes on all wage earners, and a 1% VAT on certain items, below. 

As we begin to get our fiscal house in order using all means at our disposal, the markets will respond favorably. Market risk and uncertainty will be reduced. Companies will invest. The unemployment rate will finally drop. Revenue will increase further. Our bond rating will return to where it belongs. Your retirement vehicles and other investments will show favorable returns.
Deficit Reduction Plan - (Updated 11/29/11)
The basic premise of this plan is to reach or exceed $4 trillion in debt reduction and smaller government by 2020 through approximately $2 trillion in reduced spending and $2 trillion in increased revenue (all going to pay down the debt). 
Like the agreement reached in early August, 2011 this proposal reduces during its first stage federal discretionary expenditures by $917 billion (over 10 years), including $420 billion in defense spending. During a second phase, this proposal would make further steps to reduce the deficit by an additional $750 billion, or one-half the amount that a joint committee of Congress was asked to accomplish (but failed to do). The focus of that second phase would be primarily on removing major corporate tax loopholes, not by reducing programs for the poor, or middle class, or wealthy Americans. 

 Result: $1.667 trillion in savings over 10 years.

The government will take in $2.6 trillion in 2012 from all sources – income taxes, social security taxes, corporate taxes, excise taxes. This proposal would increase tax rates on all tax payers by 1%, including individuals and corporations, social security holders, and excise taxes, with allowances for citizens who have been unemployed during the fiscal year.  

Result: $650 billion over 10 years.

Further, we should institute an across the board 1% Federal Value Added Tax (VAT) on individual item goods and services purchased having a price of $100.00 or more, each year for 10 years. The VAT would exclude food, tuition and related education and job training costs, and medical services. VATs are utilized in over 130 countries around the world as revenue generators. Proceeds from the VAT would go toward deficit reduction only. 

Result: approximately $450 billion over 10 years.

Net debt reduction: $2.767 trillion -
We should reduce the size of government further, by at least $1.233 trillion more to reach our $4 trillion debt reduction goal. This can be achieved by allowing the $1.2 trillion across the board cuts in federal spending that have kicked in due to the failure of the Super-committee to agree on anything. One option, therefore, is to just let the legislation enacted in August take its course. It makes deep and painful cuts across government, regardless of program. You may feel that this is best for America.

Alternatively, consider this original idea. The President should order his department Secretaries (e.g., Department of Energy, Transportation, Treasury, EPA.... not including Defense) to outline cuts in their own departments. This would be done by designating each program within a department with one of three priority ratings: 

- "A" priority programs (receive the lowest required percentage reduction in their budget); 
- "B" priority programs (receive a higher percentage reduction than "A" priority programs)
- "C" priority programs (receive the steepest cuts of all). 

Each department program must be given an A/B/C priority designation. 

A, B, and C prioritized programs would be proportional, based on budget dollar amount. In other words, one-third of the DOE programs from a funding perspective would be designated "C" priorities, while one-third would be designated "B" priorities, and a final one-third, "C" priorities. 

The President can make adjustments as he sees fit, adjusting some program priorities up, however, he would need to then adjust a proportional amount down, to keep the one-third funding allotments equal.  He would then provide the priority list to the Office of Management and Budget, which willonly then determine the exact percentage cuts associated with all A, B, and C priority programs, that together will meet the $1.233 trillion budget reduction goal. Once the percentage reductions are determined, the President will require the A, B, and C priority programs within the respective departments to reduce their budgets by the percentage amount identified for the coming fiscal year.

This method enables the department Secretaries themselves to trim their own department budgets. It is a simple and effective way to reduce the size of government based on the knowledge and expertise of the various department leaders themselves.

Total debt reduction: $4 trillion

What do you think? You might have other ideas. Let us know. Let's collaborate!

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