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Millionaire Myth Follow-Up

Money-Guy 07-20-2011

It seems that we struck a chord with our last show, “Jet Owners, Ogres, and Other Millionaire Myths”.  Because we received so much great feedback, today’s show is a follow-up to clarify some of our points and respond to the comments we received.

Some listeners thought the last podcast involved too much finger-pointing and did not offer enough concrete solutions.  Perhaps we didn’t make our thoughts as clear as we should have, so today we’re going to focus on some of the solutions that are available.

We all know the two most popular options:  cut spending or raise taxes.  But are those our only choices?  Of course not.  The third option, that seems to be left out most of the time, is that we can grow!  The growth rate of GDP has historically been 2.8 percent per year, and we are well below that right now.  If we could create an environment of growth, many of the economic problems we are facing right now would correct themselves.  To clarify, none of these tactics are strong enough to stand on their own.  If you look at The Money-Guy Tax Plan that we aired a few weeks back, you will see that I support a plan in which all sides compromise to better our situation as a country.  A combination of tax reform, spending cuts, and economic growth is necessary to reach our goal.

The problem now is the sense of urgency to find a fix.  The media is reminding us every second that we are running out of time.  However, we have had plenty of time to talk about this.  We’ve simply procrastinated as a country.  The bipartisan National Commission on Fiscal Responsibility and Reform came out with a report back in December of 2010, but only recently have we taken this problem seriously.   Now, we are at a crossroads.    We know there is a looming problem and we have to make a choice.  We can either come together and fix this responsibly, or we can do nothing and let the market come to play.  The problem there is that the market doesn’t play nice.  The market doesn’t care if you’re rich, if you’re poor, or what is moral.  The market will step on whoever and do whatever is necessary to bounce back.

As for the solutions you guys are looking to me for, I think we should all be looking more seriously at the recommendations that President Obama’s bipartisan commission made over seven months ago.  If you visit their website, you can read their full proposal titled, The Moment of Truth.

An overview of their goals:

  • Achieve nearly $4 trillion in deficit reduction through 2020, more than any effort in the nation’s history.
  • Reduce the deficit to 2.3% of GDP by 2015 (2.4% excluding Social Security reform), exceeding President’s goal of primary balance (about 3% of GDP).
  • Sharply reduce tax rates, abolish the AMT, and cut backdoor spending in the tax code.
  • Cap revenue at 21% of GDP and get spending below 22% and eventually to 21%.
  • Ensure lasting Social Security solvency, prevent the projected 22% cuts to come in 2037, reduce elderly poverty, and distribute the burden fairly.
  • Stabilize debt by 2014 and reduce debt to 60% of GDO by 2023 and 40% by 2035.

The six major components of the plan:

  1. Discretionary Spending Cuts:  Enact tough discretionary spending caps to force budget discipline in Congress.  Include enforcement mechanisms to give the limits real teeth.  Make significant cuts in both security and non-security spending by cutting low-priority programs and streamlining government operations.  Offer over $ 50 billion in immediate cuts to lead by example, and provide $200 billion in illustrative 2015 savings.
  2. Comprehensive Tax Reform:  Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many “tax expenditures” –another name for spending through the tax code.  Reform corporate taxes to make America more competitive, and cap revenue to avoid excessive taxation.
  3. Health Care Cost Containment:  Replace the phantom savings from scheduled Medicare reimbursement cuts that will never materialize and from a new long-term care program that is unsustainable with real, common-sense reforms to physician payments, cost-sharing, malpractice law, prescription drug costs, government-subsidized medical education, and other sources.  Institute additional long-term measures to bring down spending growth.
  4. Mandatory Savings:  Cut agriculture subsidies and modernize military and civil service retirement systems, while reforming student loan programs and putting the Pension Benefit Guarantee Corporation on a sustainable path.
  5. Social Security Reforms to Ensure Long-Term Solvency and Reduce Poverty:  Ensure sustainable solvency for the next 75 years while reducing poverty among seniors.  Reform Social Security for its own sake, and not for deficit reduction.
  6. Process Changes:  Reform the budget process to ensure the debt remains on a stable path, spending stays under control, inflation is measured accurately, and taxpayer dollars go where they belong.

I don’t see anything in this plan that seems unreasonable.  I agree with the Commission’s thoughts that “Our nation is on an unsustainable fiscal path.  We have arrived at a moment of truth, and neither political party is without blame.”  It is time that we come together, and I sincerely hope that we are able to do that in the coming weeks.

To close the show, we respond to some of the questions and comments from our listeners.  We can’t stress how much your feedback means to us and how appreciative we are of your support.  Please keep the conversation going, and let us know what you think!

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