COLUMN: The road to recovery can't be paved by tax cuts

My wife and I begin most mornings with a 2-mile walk.

There is something serene about seeing the sun rise over Grayton State Park. Often I say a silent prayer to Governor Lawton Chiles who had the foresight to protect that beautiful piece of the God’s green earth.

Recently, by mutual agreement, we delayed our excursion. Grover (Nitwit) Norquist was being interviewed on MSNBC’s “Morning Joe” hosted by our own former congressman Joe Scarborough. Norquist’s solution to our financial problem is cutting taxes and eliminating wasteful spending. Conservative stalwart Pat Buchanan immediately chastised Norquist insisting that he spell out what programs Norquist would cut, “How are you going to cut 10 percent GDP out of the federal budget” without paring Social Security benefits, Medicare and Medicaid reimbursements, military spending and interest on our debt?

Norquist refused to answer the question because it cannot be done.

His intransigence fuels our problem; perhaps Americans can’t handle the truth. Touting tax cuts as a solution is like trying to lose weight without changing your lifestyle. 

For starters we are fighting two wars, wars, by definition, are expensive. Wasteful spending is in the eye of the beholder. The sowal.com message board chided FHA loan programs in Elkhart, Indiana as an example of wasteful spending. But to the good citizens of Elkhart, replacing the Clyde Wells Bridge probably looks like pork. The magnitude of wasteful federal spending is in direct proportion to the distance it is from your front door. No, Mr. Norquist there are no easy answers to our financial problems.

Recently I bought “Choosing the Nation’s Fiscal Future” (free download at www.nap.edu) published by National Academies Press with a grant from the MacArthur Foundation. Bi-partisanship is not dead; collaborators on this report included members of the American Enterprise Institute and The Urban League. These folks realize our problem is neither conservative nor liberal but American. This report defines four ways to by fiscal 2012 to slow the spiraling increase of the federal debt relative to the economy. None of which Mr. Norquist will find palatable because they all involve tax increases of some degree or dramatic spending reductions.

Any politician who tells you that we can get out of our dilemma without some degree of pain is deluding you.

The committee proposes four ways to solve our budget woes.

1. Low spending and revenue: Tax revenue would stay essentially the same but it would require “sharp reduction in growth rates for health and retirement programs”.

2. High spending and revenue: Tax revenue increases to 33 percent of GDP (currently 18-19 percent). Social Security benefits would be secure (not Medicare); other current federal spending could be higher.

3. Intermediate: Revenues increase to 25 percent. Growth rates for Medicare, Medicaid and Social Security would be lower but other public infrastructure investments could continue. 4. Intermediate B: Revenue could slightly over 25 percent but growth rates for entitlement programs would be higher with a corresponding decrease other federal spending. Given the easily projected numbers the federal debt will be 150 perent of GDP by 2040. Of course the economy would melt before then.

To paraphrase Robert Plant in “Stairway to Heaven,” there are four paths we can go by. In the long run, there’s still time to change the road we are on.

Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@LivingstonFinancial.net.