Government spending redux

A comment from an earlier post:

My issues with government spending:

1.  Government spending is inefficient and wasteful.  You could get the same productivity with half the amount of spending if incentives encouraged productivity.  Think about the post office and the VA as specific examples.  Until government is more efficient, the easiest think to ask for is across the board cuts.

2.  Government handouts in the form of unemployment insurance, disability insurance, and welfare, should be associated with able bodied persons doing good works. There are huge infrastructure projects that could be performed by able bodied person on government assistance.

3.  Raise taxes on the super rich.  Tax unearned income above 200k per year at 90%.  Get rid of off shore tax havens. Simplify the tax code.  Decrease the tax on earned income.

4.  Show in transparent and concise form how the deficit will be reduced with increased tax revenues during good times and full employment. Basically, a rainy day fund should be created.   This has never been consistently done well in good times by congress.

Some good points. To respond, in order:

1) I absolutely agree that some government spending is inefficient. I think that the Post Office should be abolished and that the VA could be doing many things better. However, together, those two programs constitute about 1% of the federal budget, combined. In an organization that spends roughly $4 trillion dollars a year, it’s easy to find inefficient spending. What’s more important is that the government takes care of its core competencies well–for example, the government spends 20% of its budget on medical care for the elderly and the poor–from a health perspective, two of the more expensive groups of people to insure in the country. However, the government is much more efficient than the private sector (due to bargaining power and the size of the insurance pool).

1a) In an economy operating at less than potential, efficiency shouldn’t be a key goal of government spending–the overall level of spending relative to the economy is much more important.

2) I’m not sure I agree with the characterization of unemployment insurance, disability insurance, and welfare as ‘government handouts.’ Both unemployment and disability insurance are funded by payroll taxes (FICA for disability), and welfare has work requirements. Furthermore, as the last 4 years have clearly demonstrated, 1) some recessions require fiscal spending to offset declines in private spending and 2) government spending in a recession is extremely politically unpopular–automatic stabilizer spending was absolutely essential in blunting the negative economic impact of the 2008 financial crisis.

3) Agree completely about taxing unearned income–I think capital gains taxes and dividends should be taxed progressively w/ top rates somewhere in the 60-70% range. I disagree about taxing earned income; I think top marginal rates are fine where they are (if not a little too low).

4) In the entire post WWII history of the US, there have been only 2 sustained periods of time where the debt-GDP ratio has increased substantially. 1980-1992, and 2000-2010. It is incorrect to say that the US Congress has never been fiscally responsible–it’s just that the last 3 conservative presidents have been allowed to be completely fiscally irresponsible by Congress: http://www.cbo.gov/publication/43907

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2 thoughts on “Government spending redux

  1. Physician for Equity

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    By logging in you’ll post the following comment to Government spending redux:
    1. Every govt agency is inefficiently run. Walk through any govt building. Ask anyone who has worked in any govt agency. Medicare has billions in fraud that the administrators cannot seem to stop. The defense sector is rife with fraud. We should dismantle every govt organization possible and replace with private contractors through a competitive bidding process.

    2. Make every govt payout be dependent on able bodied persons doing good public works. Make disability determinations temporary, as many people on permanent disability are able bodied to do good works at a later point in their lives.

    3. Raising earned income rates too high will discourage most productive workers. Tax the hell out of the unearned income, as it has no where else to go.

    4. The deficit seems reasonable when described as debt/ GDP ratio. It would be interesting to see what happens to this ratio when interest rates rise to their “normal levels”, raising the debt burden, in relation to the GDP. We are also just describing interest payments on the debt, not any amounts to reduce the debt burden. We have shot our wad with interest rates at all time lows.

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  2. Physician for Equity

    1. Every govt agency is inefficiently run. Walk through any govt building. Ask anyone who has worked in any govt agency. Medicare has billions in fraud that the administrators cannot seem to stop. The defense sector is rife with fraud. We should dismantle every govt organization possible and replace with private contractors through a competitive bidding process.

    2. Make every govt payout be dependent on able bodied persons doing good public works. Make disability determinations temporary, as many people on permanent disability are able bodied to do good works at a later point in their lives.

    3. Raising earned income rates too high will discourage most productive workers. Tax the hell out of the unearned income, as it has no where else to go.

    4. The deficit seems reasonable when described as debt/ GDP ratio. It would be interesting to see what happens to this ratio when interest rates rise to their “normal levels”, raising the debt burden, in relation to the GDP. We are also just describing interest payments on the debt, not any amounts to reduce the debt burden. We have shot our wad with interest rates at all time lows.

    WordPress.com / Gravatar.com credentials can be used.

    Reply

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