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David Walker: The Sky is Falling 9 March, 2007

Posted by stoptaxing in federal.
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Federal Comptroller and alarmist in chief appeared on 60 minutes with his sky is falling tantrum.  The Wall Street Journal has labeled him Chicken Little for a reason.  Here is the link in case you missed it. http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226_page2.shtml

Analysis.

Could this be the fiscal equivalent of global warming? Some real indications surrounded by a lot of hype and exaggeration. It seems to me these guys seem to find one solution over and over raise taxes. The truth is you can not tax your way out of a spending problem.

These programs were poorly designed in the beginning and add ons have made them worse. The only way to solve the social security problem is with investment accounts. The only way to solve the medical cost issue is with a paradigm shift in the way we pay for health care. It will happen; will we choose wisely?

Now lets get a little realism. The other part to the solution is economic growth and fundamental tax reform. If we can average 4% growth, our economy will quadruple by 2040. This makes the numbers a lot more manageable. If we raise taxes and cut our growth to 2% our economy will only double. This means the federal budget would have about 6 trillion compared to 12 or 13 trillion annually to deal with these issues.

In the meantime, as popular programs are being dismantled, do you not think the politicians will come to terms with these social giveaways? They will not continue to grow. People will be hurt, but the country will not collapse. Would it be better if we deal with it now? Yes. Do we need to stampede down chicken Little’s road of panic. NO! The wrong solution is worse than none.

How is the best way to deal with the problem?  First we need fundamental tax reform like Governor Huckabee’s flat tax or even better the Fair Tax or a combination like Gov. Jerry Brown proposed in 1992.  We could increase tax compliance with these proposals (see closing the tax gap).   We would also encourage investment, wealth creation, and domestic job creation ( The Fair tax would treat imports and American made products equally thereby eliminating the advantage imports have).

Allow your social security trust fund to grow with the economy by allowing private investment and municiples.

Health care costs will have its own article or two.

Get the federal government closer to its constitutional purposes. 

Yes, there is a structural problem, but the sky is not falling and we do not need to destroy our economy in a futile attempt to solve it.

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