Wednesday, February 20, 2013

Cuts worth making

When you were a kid, did your parents every tell you and your sibling that one of you gets to cut the cake and the other chooses which slice they want? Its a system of fairness that everyone gets to live with. In that spirit, the Republicans want to cut the government without revenues. So,the Democrats should be able to choose which cuts that they believe the Republicans can live with. Anything more than a 1.2 trillion sequester should be matched with a 1:1 stimulus spending.

Here is a deal that could happen to put off the sequester cuts. All bipartisan cuts, no revenues, and a little bit of stimulus attached that everyone would agree to.

A quarter of the sequester - $300 billion - Instead of having the whole sequester be put into motion beginning this year, put a quarter of into motion beginning two years from now. That would give time for the economy to hit and for government agencies to plan out how best to make cuts so that the programs cut would do the least amount of damage.

Lower Future Social Security benefits for the rich (Diamond/Orzsag)  - $350 billion in the first decade, much more after that - The Diamond/Orzsag proposal changes the formula at the top tier. Most middle class families will not notice a change in benefits. It cuts the Social Security spending in the most progressive of ways.

Move Social Security to Chained CPI - $112 billion in the first decade, much more after that - Social Security grows faster than it is supposed to because an antiquated Cost-of-Living-Adjustment formula. By moving from CPI to chained CPI, tomorrow's seniors will have the same benefit levels as today's instead of slightly more.

Negotiated Pharmaceutical Prices  for Medicare - $219 billion over 10 years, and much more after that - Allowing Medicare to negotiate pharmaceutical prices with drug companies (like every other country in the world does), Medicare can save a lot of money while still offering more pills for more seniors.

Replacing Farm Subsidies with Farmer Insurance - $275 billion over 10 years - At the moment, farmers are paid a certain amount dependent on the number of acres plowed under for production of certain crops. It creates an agricultural policy that emphasis corn and other grains over fruits and vegetables. By removing food subsidies for farm insurance instead, food prices will go up slightly - but farmers will become self-sufficient and will grow what the market dictates instead of the government.

Eliminate the Penny - $1 over 10 years - It's a useless coin. By continuing it, you seignorage the poor.

If you add up all of these cuts, then it comes out to $1.257 trillion over 10 years. The Democrats should be able to get $57 billion back in short term stimulus. Here how it would be best spent in order to get the highest fiscal multiplier.

Infrastructure Bank - $25 billion start-up cash - This one time investment can make sever headway into our infrastructure spending deficit by guaranteeing private loans, working with state-local governments, and depoliticize spending choices. It would kick-start much more infrastructure spending (and the jobs that come with it). 

Local government relief  - $5 billion - this amount is far less than what mayors and their local governments have been lobbying for, but still would be enough to end layoffs on the local government level. It would buy time until real estate values recover next year, and therefore the jobs would become sufficient.

Extend the Wind Energy Tax Credit through 2014 - $7 billion - This would ensure that projects started by the end of next year will still qualify for the tax deduction, therefore encouraging more wind spending. Its an investment that both sides of the political aisle want to see.

Extend Unemployment Insurance through 2014  - $20 billion - Unemployment benefits are the most stimulating of all spending with an estimated 300,000 jobs of this year alone. As the economy recovers, the program would cost less than the year before it. Extending them for another year would create hundreds of thousands of jobs.

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