Reducing the Deficit

It looks like we're at least getting some movement on reducing spending and trimming entitlements. The two co-chairs of a presidential commission established to come up with ideas for reducing our government's enormous appetite for spending have produced a series of proposals that has in it something to antagonize pretty much everyone, but at least it should give us something to build upon:

A presidential commission’s leaders proposed a $3.8 trillion deficit-cutting plan that would trim Social Security and Medicare, reduce income-tax rates and eliminate tax breaks including the mortgage-interest deduction.

The plan would throw out hundreds of tax breaks for items such as capital gains and child care. It would raise the gas tax, slash defense spending and bring down health-care costs by clamping down on medical malpractice suits. The Social Security retirement age would rise to 68 in about 2050 and 69 in about 2075.

None of the proposals would take effect next year to avoid disrupting the economic recovery. Under one option, income-tax rates would be reduced to three levels: 8 percent, 14 percent and 23 percent. Currently there are six tax levels ranging from 10 percent to 35 percent. The corporate income-tax rate would be cut to 26 percent from 35 percent.

Wiping out all tax breaks, including the home mortgage deduction, while lowering rates would cost taxpayers $100 billion a year under the plan.

Increasing taxes and cutting defense spending will not be popular with conservatives, although the simplified tax rates will be, and Nancy Pelosi has already voiced her objection to tinkering with Medicare and Social Security:

House Speaker Nancy Pelosi of California called the plan “simply unacceptable,” saying older Americans “are counting on the bedrock promises of Social Security and Medicare.”

This seems an odd objection since as far as I can tell from the article, few of today's "older Americans" will still be around when the new retirement age goes into effect.

Anyway, a detailed list of proposals can be found here. Something has to be done soon as one of the chairmen said when the proposals were released:

“This country’s out of money and we better start thinking,” said Erskine Bowles, co-chairman of the panel created by President Barack Obama. Without “tough choices,” Bowles said, “we’re on the most predictable path toward an economic crisis that I can imagine.”

Indeed. If we don't do something to reign in entitlements and reduce the deficit the country our children and grandchildren inhabit will look very much different, and very much poorer, than the country we live in today.

Microfinance in China

Yesterday we talked about microfinance as a great way to help the world's poor improve their condition. I received this email in response, and I thought some of our readers might be interested in it:

To Viewpoint,

My name is Brendan Rigby, and I am a volunteer representative of Wokai a microfinance organisation dedicated to poverty alleviation in China. We are currently raising awareness of poverty and microfinance in China and how everyone can now get involved.

Essentially, Wokai is a peer-to-peer approach to microfinance that was created by two young social entrepreneurs. It is an innovative, contributor-driven microfinance website that connects contributors in the international community with borrowers in China. Contributors can choose borrowers to support, watch repayments, and pick who to fund next. Unlike much of the global sector, the impact of a contributor's donation is visible and apparent through Wokai.

Wokai has also built a community of contributors through the website, in which users can access user-rated and user-generated content on microfinance in China. We also encourage other social entrepreneurs to establish Wokai Chapters in their city to mobilise support and encourage others to get involved. Through information and capital exchange, Wokai aims to grow the microfinance sector in China and correspondingly increase opportunities for the poor to generate a sustainable livelihood and access education and healthcare services.

We are currently reaching out to bloggers such as yourself to help us build this community of contributors. We would be very appreciative your support in our effort to raise awareness build community support.

Microfinance in China is an extremely underdeveloped and overlooked issue that deserves more attention. Poverty in China is often overlooked and overshadowed. According to World Bank and UN statistics, around 200 million Chinese live on less than US$1.25 a day. China's financial and banking system makes it difficult for entrepreneurs and small business owners to access loan credit, especially in rural areas.

Since the website launch in November 2008, Wokai has raised over US$374.000 in loan capital, attracted 6,700 contributors, and empowered 491 borrowers. Wokai works closely with two Chinese microfinance institutions (MFI) in Sichuan and Inner Mongolia, achieving a 99.5% on-time repayment rate. By the end of 2011, Wokai is aiming to raise US$1 million in loan captial to expand its partnerships with Chinese MFIs. This is an achieveable goal, but not without more support from individuals passionate about empowering families to lift themselves from poverty.

Thank you for your time, love reading the blog and I look forward to speaking further about microfinance in China and Wokai.

I encourage readers to check out Wokai's webpage here.