Political bugs: six fixes to the US budget deficit

A couple of months ago, in the midst of the hype around the US government debt crisis, someone on a mailing list posed the following question: what are some of the "real" things that can be done to solve the problem?

The premise of the question is that the politicians were not proposing rational solutions but rather, were speaking tactically, with ulterior motives, in other words being craven, pandering, demagoguing, etc. Indeed, the US deficit is one of those things where there are a few clear "right things" that the majority of rational informed people would agree with, and yet, wrong things keep happening over and over again. Much like the "design bugs" I like to occasionally rant about, these are political bugs. I don't mean the fundamentally difficult issues where reasonable people can sincerely disagree: a carbon tax, medicare for all, a flat-tax, consumption tax, etc. etc. Those aren't bugs, rather they are unsolved problems, or new "features" to be designed. But for this post, I'm only taking about no-brainers, the bugs.

So coming to the US budget deficit specifically, here was my list of bugs (originally written on July 1, 2011):
  1. Eliminate mortgage interest deductions. Why should renters subsidize owners? No good reason.
  2. Eliminate corporate healthcare deduction i.e. count employer provided benefits as income. Why should employees of larger companies that provide health benefits be subsidized by people who get their health insurance in other ways? Why would society want to encourage linking health insurance to employment, as opposed to say children's education? No good reason. 
  3. Abolish payroll taxes and shift that all into income tax. Payroll taxes ostensibly pay for social security and medicare but really are just a regressive extra income tax, why not roll it into the overall progressive income tax? 
  4. Reduce social security by making it means tested. Why should anyone above the median income get any additional income from the government? If the purpose of a social safety net is to have the fortunate help the less fortunate, what's the point of helping the rich? 
  5. Reduce social security by raising the threshold age. The retirement ages were set a long time ago, when people aged earlier. Sixty five years old in 1930 was like being 75 or 80 today. If the population distribution shifts older, retirement age should rise. The ratio of retired people to working people has to be kept more or less constant otherwise a) it obviously won't work, and b) it will be clearly unfair. 
  6. Reduce military spending to a level where it can be called a "defense budget" as opposed to an "offense budget": 50% would still leave it twice as big as the next biggest military budget, and still greater than the next 5 countries combined
The combination of the above would easily eliminate the structural deficit. Not only that, none of these points fundamentally challenging any principles or stated societal goals, nor are they suggesting qualitative change These are straight quantitative adjustments that, in principle, libertarians, leftists, fiscal conservatives, and most mainstream economists would probably agree with. They should be no-brainers.

And yet, they can't happen. The reality is that regulatory capture makes these things almost impossible. So the debate goes on and on about tiny meaningless slices of spending that are easy to demonize, but have no impact on the real problem. Maybe something will bump the political economic system out of this miserable Pareto optimum. Unfortunately it looks like for now, the main lesson of the last three years of economic crises remains that the first casualty is causality.