Why Not Make Federal Budget Process Democratic?

by John Lounsbury

A report published last month that I saw for the first time today prompted the title question.  The Program for Public Consultation has reported on a new study that determined how the public would deal with the large government deficits.  The study determined what polls of average Americans determined to be the solution:  Cut expenditures and increase taxes.  That doesn’t seem too obscure a path, but it is not one that the current congressional process has been able to find.

The study found that if the average of public responses were to be implemented, 75% of the deficit would be resolved in the next four years.  What is astounding to this observer is that the budget  cuts do not seem to be at all draconian.   See the accompanying table (left).  It does seem that the results fly in the face of the need to address our decaying infrastructure, but if a large portion of the deficit could be resolved in four years couldn’t infrastructure needs be revisited in the 2016 budget?

The table below summarizes how the cuts in spending and the increased taxes would come together in the 2015 budget.  The summary includes the CBO estimate of the 2015 deficit with present law.  This, of course, is a moving target which, based on past experience, may be an estimate that falls far from what is eventually experienced.

The tax increases proposed by the participants are more complex and the report does not reduce tham to a table.  They are best defined by simply providing an excerpt from the report:

On average respondents increased revenues by $291.6 billion. The largest portion was from income taxes which were raised by an average of $154.8 billion above the levels currently in place. Majorities increased taxes on incomes over $100,000 by 5% or more and increased them by 10% or more for incomes over $500,000.

Majorities also made increases in corporate taxes and alcohol taxes as well as new sources of revenue, including a tax on sugary drinks, treating ‘carried interest’ income as ordinary income (also known as the hedge fund managers’ tax), and charging a crisis fee to large banks. A plurality (49%) favored a tax on carbon dioxide emissions. But a sales tax was rejected by 58 percent of respondents.

For the estate tax, a majority (77%) favored reverting at least to the 2009 levels, taxing estates over $3.5 million at a 45% rate. Only 15% of respondents supported the estate tax levels recently passed: taxing estates over $5 million at a 35% rate.

A separate sample was also asked to consider reducing or eliminating certain tax deductions for individual incomes taxes. A majority found the following at least “tolerable”: limiting the amount of mortgage interest that can be deducted to $25,000; reducing the amount of mortgage interest that can be deducted by half; eliminating the exclusion of income earned overseas; reducing the benefit of ‘cafeteria plans’; and eliminating the child tax credit to children 13 and over. However, less than half found it tolerable to completely eliminate the child tax credit.

Majorities also favored raising the maximum tax rate for both capital gains (58%) and for dividends (56%) at least back to the 20% that was in place before the Bush tax cuts.

The problem of entitlements was also addressed in what seems to be a logical manner.  The study offered eight possible steps for dealing with Social Security shortfalls in the future.  Here is another report excerpt:

Six in ten respondents selected enough steps to resolve the problem. This was the case even though many of them also chose to make the problem more difficult by increasing benefits to low income retirees.

The most popular approaches–selected by large majorities–were raising the limit on wages subject to the payroll tax at least to $156,000 and increasing the retirement age at least to 68. Substantial numbers also selected gradually increasing the payroll tax rate, and recalculating downward the inflation rate for the benefits of new beneficiaries and cost-of-living increases for all benefits.

How to deal with Medicare and Medicaid problems was subject to the most uncertainty because the effect of the new Health Care Law on the costs of tax financed programs in the future is simply not understood.  Some possible solutions that were found to be at least “tolerable” by a majority:

• Raise Medicare premiums to $135 a month;
• Raise the payroll tax rate by 1 percentage point;
• Reduce payments to doctors by 5%;
• Gradually raise the age of eligibility to 68.

Views were divided on the tolerability of raising the payroll tax by 2 percentage points.

The rationality of the consensus is in stark contrast to many of the public proposals of many politicians.  So why not make the federal budget process a matter of popular vote?  Wouldn’t it replace the current special interests controlling the congressional process with a single special interest group – citizens?

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