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
The Reason DC Can't Fix The Budget... THEY DON'T HAVE TO. These people think they walk on water and they take what they want while we (ALL of us) get left holding the bag. EVERYONE OF THEM - NO MATTER WHAT PARTY - SHOULD BE KICKED OUT OF OFFICE. THEY'RE NOT DOING THE JOB THEY ARE BEING PAID TO DO.
What to do? How about an impeachment for Obama for seriously overreaching for starters. Then work our way down through the Senate and the House. We really need to do this, because if any of us try to live beyond our means, we would be in jail. How about having a budget? And actually following it for a change?
There also needs to be a way to entice people to make the right choices (diet and exercise) to reduce the health care costs. The only way to entice people is thru their pocketbooks. Maybe people who have chronic illnesses due to obesity and smoking should pay more when they go to the doctor. I pay a fortune for medical insurance and I avoid doctors like the plague (56 yrs old and have no illnesses).
The politicians should never have been allowed to touch social security. It was not their money to play with. Actually, politicians should have to survive on social security and medicare the same as the general population. Maybe they wouldn't be so fast to try to take it away. Why do they get different benefits?
Your goal is to achieve 60% of GDP by 2021
Under the current scenario, the debt will not reach 60% of GDP by 2030.
Savings in Billions
Savings in Billions (excluding choices made in Budget Path)
You reduced the debt to 51% of GDP in 2020, and kept it at a sustainable level through 2030.
IT WAS A PIECE OF CAKE!
The new generations are bad educated, lazys, stupids zombies, their teachers are lazys (but good union workers)) the future so far look NO GOOD wen the old genration go to retirement the country may be colapse, we depend more and more from people from overseas now
Loose some weight get below 30 BMI and help yourself and this country.
Washington can't fix the budget because they don't control it. Our government is a Plutocracy controlled by foreign money. Just look at the election and how much money came from outside sources. Look at the money we're pissing away fighting foreign wars instigated by the bystanders. Why do we support Israel to the tune of 10 billion or more annually. Is it for their oil? Is it for any natural resource? It's nice of them to give our PACs back some of the money they pandered from us under the guise of military aid. What the hell do the need military aid for anyway?
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