Gov. Nikki Haley managed to eliminate one of the three agency budget deficits she inherited, in part, by slashing 20 percent out of welfare-to-work checks provided to South Carolina’s neediest families.
Haley announced Monday that her team was able to wipe out a projected $29 million deficit at the Department of Social Services. But as the Republican governor finishes her first month on the job, two of her Cabinet agencies still are predicting that they’ll run out of money before the budget year ends June 30.
Did she reduce her own salary, that of the state judiciary, and that of the state legislature, and business subsidies by 20% also? Or will she require, as politicians are inclinded to do, the poor to bear the burden while she preserves the lifestyles of the elected, rich, and infamous?
Nobody has yet examined what the much higher minimum wage has done to welfare-to-work efforts. We already know the higher minimum wage has been absolutely devastating to teen employment, and welfare-to-work folks fall into that same category of “first jobs” so badly impacted by higher minimum wages.
That said, I agree with Dan. I’ll see you, and I’ll raise you.
An across-the-board 10% cut to [i]everyone[/i] at federal, state, county, and local levels is survivable. Military, welfare, social security, bureaucrats, government pensions … you name it.
I’d go quite a bit farther. Eliminate ALL subsidies. NPR, Amtrak, agriculture (I farm for a living), community development block grants, sports, business — ALL of it. America does not need to be spending $203,000 to subsidise the Alabama Peanut Queen festival.
America does not need to spend $100,000 to pave the parking lot for the new De Soto, Kansas swimming pool, which at nearly $4 million for a city of 5,000 people — all on borrowed money, of course — is utter folly.
So here’s the quick-and-dirty plan for nationwide fiscal responsibility from top to bottom.
FY’12 — across the board 10% cut for everything, to continue indefinitely. Deal with it. Elimination of mortgage interest and charitable tax deductions.
FY’13 — 50% cut in all subsidies to everything. Public sector compensation shifted 50% of the way towards matching private-sector equivalent.
FY’14 — Complete elimination of all subsidies. Public sector compensation shifted to match completely private sector equivalent.
113th Congress (2013-14) passes the following constitutional amendment:
[i]Except in times of declared war, the federal budget of these United States shall remain in balance at a level not to exceed 17% of the average Gross Domestic Product for the previous three years. An additional 3% may be collected uniquely for the retirement of existing debt.[/i]
If we actually do this, and states do something similar, there will be plenty available to help those people truly in need.
And the next ante up is this: The Federal Government only spends money for those activities and responsibilities delegated to it by the Constitution of the United States. Take a pen to the proposed 2010 Obama Budget with that context and you can slash Federal Spending by 2/3rds, eliminate the deficit, and start to pay down the debt.
Yes, state spending would increase but each state would decide how to allocate its own resources instead of being handcuffed by unfunded Federal mandates.
And all of us would keep more of what we earn and have the Federal Govt out of our hair in terms of what we do with our private property.
By all means, bring it on!!
I suspect if we want to see TEC stop its lawsuits immediately, elimination of the charitable tax deduction will do that, #2. And charitable organization industry and jobs will dry up to a small percentage of current conditions. And elimination of mortgage interest deductions will do in the housing industry (and related industries like construction and all supply industries) for many years to come. No, I don’t think you will solve many problems by those eliminations because I think the total taxable income will decrease to such an extent that it will not produce the surplus you envision to help with the deficit. Obama is touting today what a low percentage income taxes are against GDP, comparing it to the Eisenhower era. But what he (and the news media) are failing to report is that the ratio is not due taxes having gone down to the same lowpercentage as the Eisenhower era, but it is rather because total taxable income has gone down so much in our era. Same thing will occur under your elimination of deductions plan.
Billy: before you make statements such as those in #4 it would be a good idea at least to check some numbers.
Mortgage interest deductions benefit almost uniquely high-income families in heavily mortgaged houses. That is but one segment of the housing industry. Canada has never had mortgage interest deductions and their housing market has remained in far better condition than that in the States.
Only about one-third of Americans itemize at all, yet over 90% of filers reporting AGI > $100K itemize. The most enthusiastic itemizers in all America are in Maryland — the suburbs of DC. Were we to end itemization we would end up with a [i]more[/i] progressive tax structure, and significantly greater tax efficiency.
Numbers in regard to charitable contributions are equally instructive. Massachusetts has a very high rate of itemization, yet they are utterly miserly in regard to charity; presumably they expect government to take care of such things. Massachusetts is so miserly that they could increase their charitable giving 100-fold and still be uncomfortably in the bottom half of all giving by state.
West Virginia has the lowest rate of itemization in the nation, yet for charity they are in the top ten. The most generous states in the nation — Mississippi, Arkansas, South Dakota, Oklahoma, and Tennessee — all have extremely low rates of itemization. Maryland, OTOH, for all its itemization is in the bottom third of charitable giving. The pattern is extremely consistent.
I’m not wishing to be unkind here, but your hypotheses are demonstrably false, and easily so. The demonstrable truth is that itemizers as a group are:
a) high-income families, with
b) heavily-mortgaged high-dollar houses, and
c) little inclination to share their wealth with others.
[b]Please tell me why the rest of us should subsidize high-earners’ home purchases[/b], because that is exactly the net effect of their mortgage interest deductions. Only a handful of people with AGI < $50K ever itemize, because the standard deduction is high enough that it provides greater benefits. Furthermore, detailed analysis of high-income charitable donations (such as they are) has shown they are overwhelmingly directed towards groups such as NPR, the Sierra Club, Planned Parenthood, and so on. It's their money and their choice, but the rest of us should not have to subsidize what is a personal decision. Final comment. I was for some years, the president of a smallish 501(c)(3) charitable corporation. The non-profit world is commonly both incompetent and somewhat corrupt, and I would like nothing better than to see the [i]charitable organization industry and jobs will dry up to a small percentage of current conditions.[/i] Most of them have long outlived their original purpose -- [i]e.g.[/i] SPLC, TEC, ACLU and plenty of others -- and now exist merely to keep on existing so they can keep their jobs. If they are meeting a real need the loss of Schedule A deductibility will not hurt them.
Wouldn”t really want a balanced budget amendment – just make it so the government can’t spend more than they took in the year before. Eliminates a lot of the games that are played with numbers.
As to taxes – a flat tax with no deductions
Bart, #5, I don’t know from where your “statistics” come, but I shall assume they are correct – though I daresay there is almost no one with a mortgage, regardless of income, that does not itemize to take advantage of the interest deduction. But since the upper income folks, who are the ones itemizing are paying the vast majority of taxes, I would still contend that you are not going to get the income taxes you think you are to meet budget deficits. In addition, your macrostatistics do not take into account how many homeowners are on the margin and how many charitable institutions are on the margin, so that just a little reduction can cause failure of them. And as far as your wanting a more progressive tax rate, given the fact that a huge percentage already don’t pay any taxes, the tax rates are already very progressive as they are, especially with the AMT.
Canada is an inapposite comparison. If the US had never had the deduction, no one would have come to depend on it either.
Now I don’t care one way or the other about the principal of itemized deductions. But given what taxes are used for in our modern world, and given how much of taxes are paid for by those who do itemize, your idea of their being subsidized because they are given a deduction is the height of absurdity to me.
#1–She’s only been in office 3 weeks. Let’s give her a chance. Not to mention the governor and legislature of South Carolina don’t make all that much: Governor $106K, legislators $10,400. I wouldn’t be suprised if she takes a reduction in pay, however. Actually, our governor has VERY little power to do anything. The SC Supreme Court recenlty held in a case involving stimulus funds that the governor is little more than a glorified functionary. I’m not sure what “business subsidies” you are refering to, but whatever they are, she can’t do anything about them. The legislature calls all the shots here. The governor mainly has a “bully pulpit” but very little power. Ms. Haley is a die hard “tea partier” and I think she plans to propose pretty big cuts. With our deficit, there really isn’t any choice–and Medicaid is KILLING us. It represents 2/3 of the budget deficit.
I agree with the comments above related to cutting government down. It is time we quit subsidizing big business and special interests. As a libertarian, I don’t like the idea of any kind of welfare, but on the other hand, to cut money from the little guy while leaving the big guys unscathed is ridiculous. Also, it is time to stop being the world’s policeman and participating in perpetual war (which costs lots of money).
I would also like to add that I have a mortgage and do not itemize. It is a better deal for me to take the standard deduction than to itemize. With rates this low, my interest just isn’t that much.
I’m not suggesting that elimination of itemized mortgage interest and charity deductions will necessarily generate a lot of tax revenue. My objection is that they are a [i]SUBSIDY[/i] cherished by the well-off and generally used only occasionally by those of modest means.
Homeowners “on the margin” are probably not making enough money to itemize. If they [i]are[/i]making enough and are still on the margin, I see know reason why I or anyone else should be forced to enable them in having chosen to live beyond their means.
As for “charitable institutions” on the margin, I contend that we’d be better off with the vast majority of them gone. The typical $20 donation actually ends up costing them more in administration and solicitation than it garners. I spent long enough in the not-for-profit world to have developped a deeply skeptical view of a large portion of that sector. Go read some 990s and you’ll see how many of these things exist primarily to provide jobs for their team.
And FWIW, I strongly favor a very flat, very simple tax code. For example: $12,000 deduction per adult, plus $6,000 per dependent or condition such as blindness (and perhaps active-duty military, etc). Beyond that 15% up to (pick a number, maybe $80K), 25% up to $200K and 30% beyond that.
No deductions for college, no credit for buying overprice hybrid cars, no refundable tax credits, no byzantine tax code full of special exemptions for six well-connected businesses … and so on.
Subsidies of all kinds, including those built into the existing tax codes, are seriously distorting economic activity by muddling normal market feedback. That leads people to make clusters of poor decisions and encourages a great deal of mal-investment that undermines true economic growth and progress.
Most new jobs are created by start-up small and medium businesses. The combination of government deficits and the borrowing they require, along with subsidy-distorted mal-investment, strangles employment because it stifles innovation by starving productive business of much needed capital.
Bart Hall,
Your idea of doing away with the Charitable deduction might get rid of “charities which had outlived their usefulness” but it would take a number of churches down with them. It is not a coincidence that churches receive a year end boost (which often balances the budget for the year) in December.Also,when one church defied the government and criticized Clinton, they lost their tax deduction status for their members’ contributions. It only took about 2 months for them to have to re-register under a new name because their members (who had been very supportive of defying the government rule on politics) had stopped giving to the church due to the loss of deductions.
David,
One big problem we have in SC is people try to fix problems they do not understand. Medicaid is not killing SC. That is a total myth. In fact, because of our demographics Medicaid costs South Carolina very little. You are making the classic mistake of the uninformed. You look at the State Budget, see an expenditure, and assume if you eliminate that expenditure you will reduce the state budget deficit by that amount. That is generally not the case and that is absolutely not the case with Medicaid. For every dollar you reduce the states medicaid expenditures you will be fortunate if you reduce the state’s budget deficit by 10 cents. Then, in addition, you may have to deal with the the impact of the lost medical service. For example, if Jane’s nursing home bed is eliminated, who is going to take care for Jane. Jane’s daughter may have to quit her job to take care of mom. This will result in lower tax collections, further reducing the budget savings. Jane may not get proper care and end up in the hospital, costing even more than would have been paid to the nursing home. Jane may have no family capable of taking care of her and the state may have to take her into custody and provide for her care. Things are interrelated. Reducing expenditure does not necessarily translate into reduced deficit. Reducing Medicaid is one of those areas where massive cuts save very little and have very unpredictable results.
Bart, when you want to cut my income by at least 10% and raise the heck out of my taxes, how are you not my enemy? I’m not a state employee, but the company I work for makes its money off of state and federal software contracts, and the best I can hope for in your scheme is that the 10% cut gets passed along. More likely, the state decides it has to do without us and the company has to let people go. Meanwhile, I rely upon that mortgage deduction to (barely) afford my house; I’d have to sell without it, but of course the market would be glutted with other houses and I would go from being at least above water to bankruptcy. And it’s not an especially big house.
I’m not your enemy because I’m asking nothing of you I’m not also imposing on myself. We file Schedule A about 3 years in 5, and the years we don’t are because the farm’s income has been awful.
Let’s look briefly at what is roughly median family income, which is $52,000. I’ll give it about $15,000 on the Schedule A, consistent with mortgage interest on a house affordable with that income, plus 5% charitable donations. Allowing for the exemptions, taxable income will be about $30,000. Federal income tax on that will be about $3,700 under the current system, and no worse than about $4,100 under the simplified system I suggested as an example. That is not “raising the heck out of [your] taxes,” and I chose a number that’s just about the most unfavorable to my suggestion.
Rather than quibble over numbers, however, let’s get to the more important argument — there are no longer any easy options. Those were squandered by Democrat Congresses between 1986 and 1994.
There are no longer any unpleasant options. Those were squandered by Republican Congresses between 2002 and 2006.
There are no longer any merely painful options. Those were squandered by Democrat Congresses between 2006 and 2010, as they added over 5 Trillion dollars of new debt in just four years.
The remaining options now begin at very painful and get progressively worse from there the longer we wait and the more the deficit spending continues.
People lending money to the USA (buyers of Treasury paper) are already demanding higher interest returns to part with their money. If interest rates return only to their historic averages the USA’s federal budget situation becomes completely untenable, to the extent that seizing 100% of Americans’ income would still produce a deficit.
Unless we act forcefully within the next few years, which will be very painful, the most probable outcome will be the gradual (or perhaps rapid) abandonment of the US Dollar as the world’s reserve currency, particularly for the pricing of petroleum.
If that happens both interest rates and gasoline prices will skyrocket. Will your employer survive at all in a world of 18% operating money? What happens to mortgage rates? Remember how $4.25 gasoline crashed the economy back in ’08? Try $11.00 gas.
Collectively we’re in the situation of a cattleman who recognizes there’s not enough pasture and hay to get his herd through the winter. If he’s wise he’ll calculate his situation with brutal honesty and make the difficult decision to cull, say, 10% of the herd.
If he waits only six weeks without action, in most climates he will instead have to cull 20% of the herd in order to survive. If the inaction extends to four months he’ll have to sell over half the herd.
Pointing out the hard truth and proposing judicious cuts does not make me your enemy. If, however, you insist on inaction … it does make you financial enemy.
I’m guessing that South Carolina will be digging its own hole. I bet they’ll be looking for handouts from the feds soon.
Nationally could simply do a few things: end the cap on social security payments. Immediately social security would be solvent.
We could more wisely spend money on medicaid, focusing on the 1% of persons who gobble up 30% of the expenses.
We could raise taxes to Eisenhower year levels, for equivalent incomes. This would provide an immediate disincentive for those who make money from quick bonuses. The money could then go to creating jobs with a large, national scale infrastructure program, that would have an enormous multiplier effect.
Audit, regulate and monitor military spending could reduce the budget by an enormous amount.
At that point, the economy would be expanding, meaning there would be greater government revenue.
A single payer health care system would free up billions in the economy that are now used to pay for private bureaucrats and advertisers for insurance companies.
When Carter and Reagan lowered taxes, the economy sputtered. When reagan and Clinton raised taxes, the economy did well. Bush lowered taxes, and the economy didn’t really explode the way it had undre Clinton.
Compare Iceland with Ireland. Who’s doing better?
#12–Thanks for openly insulting me on the internet. I’m actually not quite as stupid as you think. What I said was (and I quote) “Medicare is KILLING us.” That is a fact. The ramifications of dealing with it have nothing to do with the reality of the numbers. As an aside, you might find it interesting that the people who run Medicare in SC said we had a $228M deficit, but after meeting with the governor yesterday, admited they fudged the numbers. It is $100M, which is still a lot, but the bureaucrats are up to their usual nonsense. Now, we can rationally discuss the impact of the problem, especially on children, but we don’t need to accuse others of being ignorant, especially when you have no clue that your assessemnt of my intelligence level is correct, which, by teh by, it is not. I think you owe me an apology.
RE: “You are making the classic mistake of the uninformed. You look at the State Budget, see an expenditure, and assume if you eliminate that expenditure you will reduce the state budget deficit by that amount. That is generally not the case and that is absolutely not the case with Medicaid. For every dollar you reduce the states medicaid expenditures you will be fortunate if you reduce the state’s budget deficit by 10 cents.”
Not certain why you would assume that David doesn’t know about the Fed government funds to SC for Medicaid — even moderately informed people know about that and it’s not particularly “special knowledge.”
Problem is . . . Medicaid is a Fed affair [though SC offers some funding] and as such SC has to endure the thousands of regulations and demands of the Fed program, including who is allowed into the program.
At the end of the day, SC should simply opt out of the program entirely [and the Fed’s regulations/mandates] and simply block grant fund local low-cost medical clinics with complete malpractice freedom to those physicians who volunteer their services.
I suspect that that is the trend belief for many states with conservative leadership. We need to move forward and fund our own services and be free of Fed requirements on whom should be in or out of whatever social welfare net is constructed — by the State and local communities.
Sarah–Thanks. I agree. The funding apparatis for Medicare and Medicaid are disasters. I am not an economist so I don’t know the tipping point numbers, but I have long been a proponent of doing away with the part of HHS that deals with medicare and medicaid, and simply funding some form of insurance supplement, based on income, for all the recpients of both. I am all for getting the Feds totally out of housing and medicine.
[i] When Carter and Reagan lowered taxes, the economy sputtered. When Reagan and Clinton raised taxes, the economy did well. Bush lowered taxes, and the economy didn’t really explode the way it had under Clinton. [/i]
Mr. Wilkins, I certainly respect your arguments with regarding Medicaid, Social Security, and infrastructure spending (although I may not agree) but, you are skewing the facts regarding tax rates and economic growth. By not accounting for any other factors, e.g. the Fed’s monetary policy, and neglecting to include time periods of the tax rates and the subsequent economic growth, one can make things as rosy or bleak as one’s desires.
Reagan signed a bill in August 1981 that cut the top tax rate from 70% to 50% and the bottom from 14% to 11%. The economy subsequently sputtered in 1982 BUT, it roared in ’83 and ’84. Part of the reason for the lag time was that the Federal funds rate reached 20% in June ’81. To cover the rest would require an entire semester.
Don C–Thanks for noting that.
[blockquote]Reagan signed a bill in August 1981 that cut the top tax rate from 70% to 50% and the bottom from 14% to 11%. The economy subsequently sputtered in 1982 BUT, it roared in ‘83 and ‘84.[/blockquote]
And in September 1982, Reagan signed a massive tax INCREASE that offset many of the cuts from 1981. So by that timeline, the economy sputtered after the initial tax cut, and then roared after the offsetting tax increase.
Tegularius, you’re making the same assumptions and/or correlation that was made above. A change in the tax rate does not have an immediate effect the following week or month. To assume that a change in the tax rate in September ’82 equals an economic boom in January ’83 is premature at best. What happened to the cash infusion in the economy from the previous year?
Frankly, this could go back and forth all week.
Don and Teg–I think the tax “increase” Teg is talking about is the re-institution of the full FICA tax after it was reduced by 1/2, for one year only, to put money into the system. By that measue, Obama will be raising taxes in Janauary 2012, becuse we are doing the exact same thing right now. So, everyone hold that thought and let’s see if the economy takes off when the FICA tax re-starts. I personally have my doubts.
No, I am referring to the “Tax Equity and Fiscal Responsibility Act of 1982”, which was a tax increase offsetting approximately of the tax cuts of the previous year, and measured as a percentage of GDP is among the largest tax increases in history.
24–Ok; got it. I suppose we are beating a dead horse here, but TEFRA didn’t raise income taxes. It reduced the rate reductions that were projected in the original 1981 tax cut. While it raised some taxes, like excise taxes, it did not raise marginal INCOME TAX rates. The marginal US income tax rates were lowered by at least $360B even with the elimination of future anticipated income tax cuts.
David,
I do apologize if I left the impression I was insulting you. I did not intend that. I do not think saying someone lacks information on a subject is necessarily insulting, but I do apologize for any offense. I realize how things sound in writing are not the way they would sound in a face to face conversation. I did believe the statement “Medicaid is killing us. It represents 2/3 of the budget deficit” referred to SC, and if it did, that statement is very inaccurate.
Regarding Sarah’s comments.
First, I did not assume David did not understand that most of the money expended by Medicaid comes from the federal government. I assumed he knew that, and that the budget item he was speaking of was the state’s portion of Medicaid expenditures. What I was trying to say is every dollar the state cuts from its portion of total Medicaid expenditures, will probably reduce the state’s net outflows (collections less expenditures and not necessarily a deficit) by about ten cents; and those cuts would have collateral consequences that may actually increase the state’s net cash outflow.
Regarding block grants. Yes that is one possible option that many like. Particularly state politicians anxious to get their hands on a large pot of money that they can direct to constituents. I happen to believe that option would almost certainly be an economic catastrophe for SC and most southern states (the states pushing that option). In fact, my fear has been the big “blue” states will take a look at that option, realize what it means, and stop saving us from ourselves. Medicaid matching funds are not currently allocated among the states based on population. Allocation is based on demographics. Most southern states benefit from that method of allocation.