Jeffrey Sachs' plan on fixing the deficit will be ignored, but it shouldn't be

The reason this is becoming urgent is because with all of the discussion in Washington about spending too much money, the fact of the matter is we're still dealing with the effects of a serious recession (though Greenspan said on Sunday it's been over for months).

In the current Time magazine, economist Jeffrey Sachs has written a trenchant article entitled, "How to Tame the Budget Deficit."

Sachs writes that even if the federal government were to make serious budget cuts (including to such sacred cows as defense), there still isn't enough in the coffers, which is why he argues that we need to raise taxes, and not just on those making over $250,000 a year.

Obviously, if the president were to do that, it might be considered political suicide (i.e., Bush, George H.W.).  So what does Dr. Sachs prescribe?

The essence of the compromise, I believe, would be for Republicans to accept collecting higher tax revenue as a share of GDP, with the money to be directed mainly at education, training, poverty relief, infrastructure and deficit cutting, while Democrats discard the tax-only-the-rich approach and look instead to broad-based taxes and low marginal tax rates.Both sides could agree, for example, on a value-added tax (VAT) — a sort of national sales tax — combined with closing loopholes and reducing some marginal tax rates, including the corporate tax rate. Democrats traditionally champion tax progressivity. But they should learn from the European social democrats, who know that it's more important to be progressive on the spending side — in education, poverty relief and public services — than to focus tax policy only on the rich. Low corporate tax rates, meanwhile, help maintain global competitiveness and retain jobs. The Scandinavian countries of Denmark, Norway and Sweden, for example, avoid levying crushing taxes on businesses in order to keep their economies competitive. They establish fairness not so much by progressive tax regimes as through spending on health, education, training and child care. That has the effect of boosting the well-being of lower-income families alongside the middle class.

This is truly an important issue that Sachs is arguing here, and I urge readers to check out his piece.  But is anyone convinced that anybody in Washington is prepared to do the heavy lifting?  The president's not going to have much of a choice, I fear, going forward.

For any of you citizens who are absolutely freaked out about the escalating federal deficit, a story in Monday's USA Today should cause you to shudder.

The paper reports that Social Security's annual surplus nearly evaporated last year for the first time in 25 years as the recession led hundreds of thousands of workers to retire or claim disability.

"Things are a little bit worse than had been expected," says Stephen Goss, chief actuary for the Social Security Administration.   "Clearly, we're going to be negative for a year or two."

"The moment of truth has arrived," says Rep. Paul Ryan R-Wis., top Republican on the House Budget Committee. "This is a wake-up call."

    Since 1984, Social Security has raked in more in payroll taxes than it has paid in benefits, accumulating a $2.5 trillion trust fund. But because the government uses the trust fund to pay for other programs, tax increases, spending cuts or new borrowing will be required to make up the difference between taxes collected and benefits owed.

Experts say the trend points to a more basic problem for Social Security: looming retirements by Baby Boomers will create annual losses beginning in 2016 or 2017.

But will anything be done about that?  As I blogged earlier on Monday, former Federal Reserve Chairman Alan Greenspan on Meet the Press said that in addition to raising taxes, Congress needs to look at ways to deal with Social Security.  But he said that it's obvious that nobody in elected office wants to touch the "third rail" of American politics, to our detriment.

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