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.
VIDEO ON MSN MONEY
Well if people did not say stupid things I would not get the opportunity to call them names. Take this moron of an author for example.
"And before you assume the rich should just pay more, know that we've already got one of the most progressive income tax systems in the world. As a percentage of the federal tax burden, the rich's share has grown from 55% in the 1970s to 70% now (as their share of income went from 45% to 51%). Yet over the same period, the middle class' share of taxes has fallen from 14% to 9% (as their share of income went from 16% to 15%)."
Gee WTF does that say? What were the tax rates back in the 70's? If the riches share of the income has increased while the middle class has decreased WTF does that mean logically? That taxes on the rich are to low at the moment and you are crying about nothing. Waaaaahhhhh I am not rich enough when I can only have 10 to 20 times what others have waaaaahhhhh. I can only have 10 houses, 10 cars, 10 boats, 10 motorcycles, maybe a plane, etc. /cry.
Without a high enough tax rate rich people will continue to try and reward themselves with more and more money taking a larger and larger share. The problem is they do not spend it, but save/invest it and then EXPECT even more money and to be REWARDED AGAIN AND AGAIN. Where does that extra money come from? Each time the Federal Reserve prints more it reduces the value so you are really chasing your own tails. Bubble and trickledown economics FAIL. Corporations FAIL, or government should NOT fail and that is where some of that waste is going.
If you actually understood mechanics or electronics you would understand that for every "check and balance" comes inefficiency. Without checks or balances systems run more efficiently, but a single compent failure can and will cripple the ENTIRE system.
If Washington was serious about 'fixing' the budget they'd start with foreign aid. It's way past time for America to stop sending billions of dollars to countries that hate us and start spending some of that money here. Our infrastructure is crumbling around and beneath us while the 'lords and masters' of the countries that receive our money for 'aid' live in mansions and their 'subjects', the very people the money is supposed to help, continue to live in squalor and starve to death! The 'overlords' of these countries, the true beneficiaries of our money, have never and will never offer any assistance to us in a widespread emergency but yet our government calls them our allies and thinks they must continue to grease their palms! It's time our elected officials said to hell with them and started representing us for a change!
The bill that every country in the world passed. Bob Dole and McCain supported and spoke for defeated?? Aid for hurricane sandy 2 months latter has 60 billion in ear marks???? the only thing they care about is the ben. embassy raid??? spend all their time??? it is the solemn duty of host country's to protect the embassy??. SO IF GERMANY SAY'S IT WILL NOT SELL MERCADECS IN THE U.S. AND 2000 PROTEST THE EMBASSE AND SOME JUMP ON THE WALL THEY ALL ALLOWED TO SHOOT ALL AND THE CROWED AROUND IT ????????? OF COURSE NOT IT IS THE JOB THE UNITED STATES PROTECTS IT. Embassy's are not allowed to us force
they should not have to they are protected??
5. Cut the size of the government to a realistic level, about 50% of what it is now. That's a good start and if I had the time I would add a lot more to the list. Just doing these 5 things would come close to balancing the budget. Oh I forgot 6. SUBMIT A DAMN BUDGET! AND STICK TO IT! THAT'S WHAT THE WIFE AND I HAVE TO DO!
...I must be way behind everyone else...I still would like to know about obamas birth certificate or his social security card and then there is his selective service card....all of them are fake...so why isn't anybody upset about this....? Why is he sending so much money to kenya....or......
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
[BRIEFING.COM] Equity indices extended this week's losses with a broad-based retreat. The S&P 500 fell 0.6% to end the week lower by 1.1%, while the Russell 2000 (-1.1%) finished with a 0.9% decline since last Friday.
Staying true to the theme observed throughout the week, the energy sector (-1.5%) tumbled out of the gate, thus dragging the broader market down with it. Once again, dollar strength and crude oil weakness contributed to sector's underperformance, but the ... More
More Market News
|There’s a problem getting this information right now. Please try again later.|
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'