1/24/2013 12:30 AM ET|
Why Washington can't fix the budget
Americans want low taxes and government largesse, and are ready to punish anyone who says that's not possible. Is it any wonder politicians are afraid of hard choices?
Now that the inaugural balls are over and the speeches and celebrations are finished, Washington returns to the task it's been struggling with for years amid partisan rancor and brinkmanship: how to solve the budget mess.
Our leaders have had little success in addressing the problem, so the debt load is now larger than the economy's annual output, at roughly $52,000 for every man, woman, and child in America.
There's a reason that the problem seems never-ending. And President BarackObama touched on it in his inauguration speech when he said that he rejected "the belief that America must choose between caring for the generation that built this country and investing in the generation that will build its future."
The problem is, we can't do both. Not so long as we hitch the government's finances -- via Obamacare, Medicare and Medicaid -- to a bloated and inefficient health care system. Not while making needed investments in education and infrastructure, and providing for the national defense. And it can't be done while keeping taxes reasonable.
Thus, the bickering. The deficit commission. The congressional deficit committee. The fiscal cliff. The debt ceiling. The fact that the government hasn't operated under an actual budget since 2009. The recent flirtation with the "trillion dollar coin" idea. There is a real and growing threat that our fiscal procrastination will damage an already fragile economic recovery via a government shutdown, a debt default or a credit-rating downgrade.
So now, with the economy faltering again, continental Europe and Japan in new recessions and the United Kingdom slipping into one, too, we have politicians focused not on making hard choices to solve the problem but on finding ways to pin the blame on the other side. And it's going to get worse before it gets better.
A tough nut to crack
The political reality is that no one wants to be the bearer of bad news. No one wants to spell out the cuts that are needed. Part of the reason the Republicans lost the presidential race was because of their plan for Medicare vouchers and deep spending cuts. Even though the GOP approach would have taken a decade to balance the budget, even this fiscal tonic was too harsh for the electorate. Voters instead preferred Obama and his call that the rich "pay their fair share."
Americans want to believe that the days of ample spending, low taxes and easy credit can continue -- and they will punish anyone who tells them otherwise.
While Obama talked in his inauguration of making the "hard choices to reduce the cost of health care and the size of our deficit" -- which has been $1 trillion or larger for the past four years and likely will be for at least two more years -- no one wants to put pen to paper to outline the reforms that are needed.
Obama's 2013 budget proposal, the only working budget document we have from the Democrats, did nothing to address the long-term debt, as the chart below, lifted from that proposal, shows. That's because it doesn't propose the structural reforms that are needed to control costs associated with the aging of baby boomers.
In 2011, the three major entitlement programs -- Medicare, Medicaid and Social Security -- accounted for 44% of non-interest government spending, up from 30% in 1980. According to Credit Suisse estimates, the way things are going, by 2025, spending on these programs, plus interest on the debt, will take up 100% of tax revenues.
Mostly, it's health care. Over the past two decades, annual health care cost inflation has been running at 150% of the underlying inflation rate. Asa result, despite mediocre scores on measures of the quality of care (such as infant mortality), we pay far more per capita than anyother developed country.
What's really scary is that the chart above assumes the economy will grow at a 3.7% average annual pace through 2018 (which is doubtful), interest rates will remain near zero and that the cost-control efforts in the Obamacare legislation -- such as the tax on low-deductible health care plans and the Medicare payment advisory board that opponents have dubbed "death panels" -- will actually work as planned.
If any of these assumptions is incorrect, the long-term outlook will be even worse.
What will it take?
To really wrap your head around the scale of the problem, I recommend trying the Committee for a Responsible Federal Budget's budget simulator tool, which allows you to pick and choose ways to close the deficit and stabilize the country's debt load by 2021.
The tool was designed before the fiscal cliff deal -- which the Congressional Budget Office says will increase the deficit by $4.6 trillion over the next 10 years -- was done. So be sure to factor that in.
It also doesn't account for the impact on growth of things like tax hikes (negative) or short-term stimulus (positive). Indeed, Merrill Lynch believes the various tax hikes associated with the fiscal cliff deal will reduce disposable income by 2.1% this quarter and will drag down first-quarter growth of gross domestic product. Consumers are already expressing displeasure, with the Consumer Sentiment Index recently falling from a post-recession high all the way down to levels not seen since late 2011.
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Does anyone even consider the fact that the INTEREST on the National Debt in 2012 was $220 billion?
Also, the last time a TRUE Budget was passed was in 1997, under Bill Clinton. The 'budget' passed in 2009 was actually an 'Omnibus Spending Bill', not a true Budget.
And haven't we oursleves paid for our SS and medicare out of each and every PAYCHECK RECEIVED.
So if the idiots wish to cut it, will they be sending us all reinbursement checks in full amounts?
It is not an entitlement if you pay for it!
Washington DC is so very out of control with obstruction and dreams that obvious they have other priorities than Helping the people of the USA!
EX of both sides:
The GOP has wasted an abundance pf time and money over the hagel nomination while they are stuck in figuring out who is to blame for the past over that of discussing prevention.
In the same respect President Obamas is a dreamer who is v\extremely out of touch with the needs of this country as he tries to corerce us to compete with China. And his current focus on on the Brain and science of relation is a thoroughly waste of money. Brain research is not going to stop violence and greed, yet he pursues it as if a personal passion at an enormous expense that could used more efficiently elsewhere!
I hate articles like this because they don't really educate anyone. First of all, lumping Social Security, Medicare and Medicaid together just because they're all under the misleading label of "entitlement" is extremely wrong. Let's call them "ducks" instead of "entitlements" because it makes about the same amount of sense but without the prejudicial overtones.
Let's start with the Social Security duck. We're PAYING for Social Security. It's not a freebie and it's not broken. It shouldn't even be part of the budget. Does it have a revenue shortfall? Yes, because of the concentration of wealth that has occured in the 30 years a smaller percentage of wages pay the Social Security tax than was anticipated. The solution is trivial. Raise the cap on SS wages to get the percentages back in line. How come no one writing articles like this tells you that wages over $110k pay no Social Security tax.
The Medicare duck isn't a freebie either. You and your employer pay a Medicare hospital insurance premium of 2.9% of your salary (going up to 3.8% in 2013 for some folks) with each paying 1.45%. The problem with Medicare is the "insurance company" is losing money due to an aging population and increases in health care costs. As much as I hate to say it, premiums have to go up, qualification for Medicare needs to be delayed and Medicare fees need to be limited based upon the cost of living in the doctor's area.
The Medicaid duck is the only true welfare entitlement. It currently represents about 7.5% of the Federal Budget but is expected to increase to over 9% by 2017. There will always be a portion of the population that can't care for itself. We need to accept that, but you can seriously reduce Medicaid by getting people back to work.
Of course Defense spending is 19% of the budget and 6x what the next highest defense budget (China) in the world is spending. I didn't see anything about going on a slight defense spending diet in this article but we need that as well.
Now personally I don't see what the hell is so hard about this. Lay out the facts to the American public and do what needs to be done.
There are many problems in our economy, and few will be corrected under our present form of government. What we need is a benevolent dictator who will control our lives and our economy. Our dictator could easily reduce spending by eliminating all social programs for the freeloaders and forcing them to work on infrastructure programs, eliminating all worthless government projects and departments, deporting all illegals and eliminating all unions,, cutting all waste, corruption, and incompetency from the remaining programs, broadening the death penalty for all criminals and for malfeasance by government employees, eliminating all deductions, credits, and other loopholes from our Tax Code and severely punishing all tax cheaters and identification thieves (see "death penalty " above), maintaining our military as a force to be universally feared while eliminating all attempts at nation building and foreign aid, and so on and so on.
All of our problems would then be solved. Now all we have to do is to find someone who is benevolent and who won't be corrupted by power.
The budget can't be fixed, because of the influence of powerful interests on the government. Until the voters elect a Presidential candidate who isn't forwarding the establishment agenda, the problem won't be solved. There was a candidate in the primaries who had a proposed budget that would cut spending by one trillion dollars the first year and balance the budget in the third year, but the voters decided that they didn't want that.
I think govt should do two things and two things only.
1. Protect our borders and National interests
2. Deliver the mail
and i don't care if the mail is on time............
Question......Why Washington can't fix the budget????
Answer.........Lack of well informed and educated voters.
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