Goldmark: You, me and the federal budget

They were playing Russian roulette over budget issues in Washington again last week. "I'll shut down the government if you don't do what I want." The trouble is, the pistol has been aimed at the American people -- that's who's really being held hostage.

Let's imagine that you and I have been asked to balance the federal budget. Imagine we're not in a legislative crisis, but have some time to reflect and be thoughtful. Just you and me, around a kitchen table with a cup of coffee. The rules are: We can do anything we want without worrying about political obstacles. (This is what Einstein called a thought experiment.)

The United States' budget deficit today runs about $1.5 trillion.

As an exercise, let's aim to get half of it on the revenue side. For those of you who rebel at that, stay tuned. It can't all come from the cut side.

Everybody hates tax cheaters and evaders. The United States loses about $300 billion each year that way. Let's hire a big, tough anti-fraud unit, give its staffers extraordinary enforcement powers, and send them after that $300 billion. I bet they can come up with $200 billion to help close the gap.

We need more revenue from the corporate sector. U.S. corporate profits are the highest they've been as a percentage of gross domestic product in six decades; personal wage and salary income is lower as a percentage of GDP than it's been over the same period. Not a good balance. So let's tax those corporate profits, which many companies are not reinvesting, at a higher rate. Corporate profits this year will run about $1.5 trillion, on which taxes will be about $300 billion. Let's get another $300 billion out of these profits. We can use some of that to reduce income taxes on working families. And maybe the prospect of taxation will get some of those companies to invest their profits and created some jobs, rather than hoarding the cash.

Can I pour you some more coffee? Because the next one is tough: a consumption tax (also called a VAT, for value added tax). We are on the verge of a downward economic spiral and we've got to balance the budget quickly. We can't load more personal income tax on the middle class; but we can live with a consumption tax. Most of the rest of the developed world does, and our states and cities do. A 6 percent national value added tax would generate $300 billion per year. It would raise prices perceptibly -- another reason to offset part of the corporate tax increase with a cut for working families. They'll spend the money, even if corporations don't. A national VAT is hard to cheat on; it's simple to calculate and collect; and it's less susceptible to loopholes and gimmicks than income taxes. And basically we don't want to raise income taxes . . . except on one group: those earning more than $1 million per year.

Their income has gone up many times faster than their tax load over the past two decades. That doesn't make sense -- especially when they can help close our deficit more easily than any other group. So let's tax the very rich at a level that will generate about $100 billion more a year.

This makes a revenue package of about $900 billion per year. Let's shave that down to $750 billion, and set aside $150 billion to allow a break for working families, and some exemptions in the application of the sales tax. That package, plus an equal amount in annual cuts -- tough, but doable -- will get to a balanced budget.

Are you gagging on your coffee? Don't. We can afford it. We're the richest country on earth, and we have deep pockets -- at least for now. If we don't close the deficit and reduce our debt, we won't have deep pockets much longer.

There's no free lunch here -- it's time to get serious and tough. The sooner we do the heavy lifting, the lighter the load will be. Grover Norquist, who's never balanced any government's budget, will have a tantrum. But our children will thank us.Peter Goldmark, a former budget director of New York State and former publisher of the International Herald Tribune, headed the climate program at the Environmental Defense Fund.