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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Here is a thought:
Why not create State \ Fed owned banks?? Fed owned grocery stores?? Fed owned car dealerships.. etc... In turn, making them "citizen" owned and having the revenue generated by these businesses given back to "people". Not to mention create jobs. It seems the corporations and financial institutions that reside and profit within this country do it privately at our expense. I would love for my next overdraft fee to go to a good teacher's salary.
Is there a law or patent on "Profit" that prevents that from happening?? Not to my knowledge
Start taxing churches...!
And also, lets bring back Greenbacks!!!
I honestly think a proper way to cut the budget and get back to reality here is to stop ALL the spending tucked into different bills put before the House ,Senate and President. If its a spending bill for road repairs then that's all it should be - nothing else. They should be plain written and shouldn't mount to hundreds or thousands of pages long . Each bill spending or cutting should be for one not both or more than one thing . This is not JUST Republicans in the Congress doing the wrong thing , it is about ALL parties doing the wrong thing - President , Senate and Congress. Lastly I would like to add our government is the biggest government we have ever had , might this be a contributing factor to the budget problems ???? just think our government needs to get back to basics - basic government , not overstocked the bureaucracies
we have now , many "departments", if you will ,could be consolidated , made smaller , or done away with all together.
Washington can't fix the budget because of the donkey administration running the country.
Social Security and Medicare are entitlements! I paid into Social Security and Medicare and I am ENTITLED to it!
Food Stamps and Medicaid are welfare! These programs are for the poor and no one has paid into them. Taxes pay for these programs. These programs are needed, but also need to be reformed.
Oil subsidies, Farm subsidies and all Corporate welfare are TREASONOUS programs. END THEM ALL NOW!
Hey Itmn :
There are only so many ways you can get out of debt, if you are the Government. Either you barrow more to pay off the old. BUT that really doesn't help. You can raise taxes on those that can afford to pay more. Or you can give tax breaks to millions airs that are paid for by those who live from week to week on their pay check. The second being the best choice, however if you don't stop spending then as you said we have a HUGE problem. BOTH sides have things that they want to be paid for, so it just isn't the Dem's ! The Republicans would have you believe that it's OK to barrow. We did that for 12 years from 1980 to 1992, it was called "Deficit Spending". We also have the debt of two wars, a tax cut and medicare program ALL unpaid for and ALL under Geo. Bush ! So they are NOT all innocent.
We have serious problem in this country of that there is no debate. However in order for us to solve them, we MUST resolve them together. For we shall not solve them separately !
I really, really hope that america will see the truth. We are in a world of sh--t. Obama and the democrats seem to put on their rose colored glasses and pretend that everything is A OK. Well it isn't. We don't even know how much Obama Care will actually cost. We are in debt up to our eyeballs. The sky IS indeed falling. Obama and the democrats are only intent on raising taxes without cutting spending. We are SPENDING way more than we take in. Ask yourselves this, how would that work in our own personal budgets. BANKRUPT!
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