The Two Point One Solution

The Two Point One Solution
Win the Future with my budget compromise.
by John Hayward
07/12/2011

“Compromise” is the hot word in Washington during the debt ceiling debate. President Obama has repeatedly told us that everyone must give up their “sacred cows” and work toward a solution.

The other big word in Washington is “unemployment.” Real unemployment is approaching 17%. After the cloud of blue smoke from the Bureau of Labor Statistics was dispersed, and its mirrors were shattered, we discovered that the economy actually lost 157,000 jobs last month. Factoring in the needs of an expanding population, that puts us 277,000 jobs shy of net monthly job creation.

2.9 million private-sector jobs have been lost since Obama took office, and need to be replaced. Since one-month statistics don’t provide a complete picture, consider that average job growth for 2011 has been roughly 160,000 per month. At that rate, after factoring in the 120,000 new monthly jobs needed to keep pace with population growth, it would take America roughly five years to get back to where we stood when Obama became President. We need to do better than that.

The current federal budget deficit stands at $1.6 trillion dollars. The Democrats are desperate to close this gap by raising taxes, but this is impossible – no tax rate under discussion for any segment of the American population will come anywhere near producing $1.6 trillion in annual revenue, even using the most unrealistic static analysis.

Under real-world dynamic models, higher taxes on job creators results in higher unemployment, which reduces the base of taxable workers. It also generates more deficit spending through the payment of unemployment benefits and welfare. The net result of higher taxes is, therefore, either minimal deficit reduction or higher deficits… and that’s assuming the new revenue from higher taxes is not immediately spent by the same politicians whose irresponsibility got us a $1.6 trillion deficit in the first place.

We also have a $14 trillion national debt, but the Democrat Party forcefully insists this is not a problem. In fact, they want the national debt to go higher, by raising the debt ceiling. President Obama originally demanded a vast debt ceiling increase without any preconditions at all.

There is no federal “budget” at the moment, as the Democrats have not passed one for 800 days, but it is estimated that Washington will spend about $3.7 trillion in 2011. Of the $2.1 trillion in anticipated revenue for the year, about $1.5 trillion comes from income taxes.

Republicans, on the other hand, want dramatic reductions in spending, to cut our massive federal budget down to size. Following the President’s imperative to think outside the box – which is rather cramped, as it is packed full of sacred cows – I would like to propose a real compromise that would spur fantastic job growth in private sector. I call it the Two Point One Solution.

1. Reduce the federal budget to $2.1 trillion.

2. Reduce the income tax rate to zero, for all income brackets.

This would leave the deficit untouched at $1.6 trillion, since we’d lose $1.5 trillion from income taxes but still have $0.6 trillion rolling in from other sources. In fact, those other sources would probably generate more revenue from the resulting explosion of economic activity, reducing the deficit.

The national debt would go up because we still have a huge deficit, but what the hell, that was going to happen anyway. Why not get something fantastic in exchange for that mounting debt?

Serious budget cuts would be needed to get us down to $2.1 trillion, but George Bush’s last budget was $2.8 trillion, and that was frankly much too high anyway. $2.1 trillion is roughly comparable to the federal budget in 2002. Nobody thought we had a scrawny federal government in 2002. Repeal ObamaCare and we’re at least halfway there.

President Obama is very proud of the payroll tax reduction he signed into law recently. In fact, in his press conference following the release of the dismal June unemployment numbers, he went out of his way to take credit for it, and said that extending it was one of the things we could do “right now” to reduce unemployment. How could he possibly object to the Two Point One plan, which would give all of those people even greater tax relief?

It is a staple of Democrat Party rhetoric that the best way to stimulate economic growth is to put money in the hands of the lower economic rungs, because they spend it on stuff, producing boom times for retail outlets and service providers. This, in turn, produces demand that “trickles up” through the entire economy. Last year, this line of thinking led then-House Speaker Nancy Pelosi to declare that unemployment insurance is one of the biggest sources of economic stimulus.

I challenge the Democrats to prove their sincerity, and support my Two Point One Solution. According to their economic theories, it will be the greatest economic stimulus ever witnessed by the human race. Thousands of dollars will appear in the hands of middle class ex-taxpayers, and it will happen immediately, without any administrative costs. They’ll just start taking home more money, beginning with the very next paycheck.

The time for this grand compromise is now. $2.1 trillion and no income tax for the win.
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To read another article by John Hayward, click here.