The battle over balancing the budget, another possible solution. -, Learning Economics... Solved!


The battle over balancing the budget, another possible solution.

(AP Photo/Charles Dharapak)
If you have been watching the news in the US recently then you know that politicians are discussing ways of balancing the budget.  Republicans really have the power here because they control the legislature and can decide whether or not to raise the debt ceiling which would force President Obama to make some changes.

During their recent meetings it is rumored that Republicans want to cut benefits to the public (such as social security, medicare, and welfare) while the Democrats want to raise taxes (higher income and corporate taxes, and capital gains tax).  This is actually a cool discussion because it shows the differences in the schools of thought between the Democrats and the Republicans. 

Some might disagree, but in general Republicans take the approach of a classical economist who believes in more laissez faire style approaches which roughly translates to live and let live, or let the market take care of itself.  While Democrats on the other hand wish to have more control over what transactions can and should take place.  By having high taxes, and high transfer payments to the public, the government has more control over what we can and can't buy (because they control the money).

I can see both of their points, but the real problem is that NOTHING is being done!  I propose that we have broad cuts of 1% to most non-crucial government programs including the salaries of all government employees (including benefits), and a 1% increase in taxes across the board.  This will move us closer to balancing the budget.  If this is not enough then we continue the 1% rule in both spending and taxing each year until we reach our balanced budget.

Now this rule is very simple, and suffers from the same problems that a flat tax would suffer from, but in the light of nothing being done, it is a simple first step and it will work.  Eventually, after enough years of small cuts and small tax increases we would reach our goal.  The beauty of only changing things by 1% each year is that no one person or group would really be punished by it.  Sure someone making 1 million dollars a year would have to pay 10 thousand dollar more in taxes but it is only 1% of their income.  Likewise, someone on the other end of the spectrum who receives 2 thousand dollars a month from social security would only receive 20 dollars less.

Everyone should be able to cut 1% from their budgets with minimal impact on their well-being.  Let me know what you think.