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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The easiest way to fix medicare/Obamacare. I live in Mexico now and rather than go to the hospital I go to the pharmacy. There is an on-call doctor that gives me a quick check-up free of charge. I then get my prescription of antibiotics outside the door. This would cut all minor visits to hospitals.
Second, allow importation of medicines. I pay 30 dollars for the same pill in the USA at 300.
Third, cap all major surgeries. There is no reason a surgery at one hospital will cost 10,000 dollars while 25,000 at another. The medical community is gouging us and it would be illegal in any other market.
I am 77 years old and still working. I collect social security which is not entitlement. I also pay $120.00 a month
for social security. I pay 104.00 a month for Medicare. I have a supplement health care premium at $50.00 a month.
My husband passed away at 65 years old. He never got a dime from Social Security. We both worked all our
lives and paid into social security. And the government calls this an entitlement. Bull Chit
I don't know what Americans you're talking about... I say LESS Government! The American people have become lazy, expecting something for nothing. This country was built on hard work, not people receiving welfare and government freebies.If Congress would stop spending money (like the rest of us poor saps have to, what a concept!) we'd be better off.
The more people having government jobs and subsidies, the harder it taxes the working stiffs. Get your heads out of your asses Congress, and smarten up!
Corruption breeds more corruption,Our government has passed the point of no return and this is why the founding father's knew we should be armed to take back our country from a corrupted government.
It is out of control and has to be stopped,,Or you will lose all rights before they are done.
A. Hire more people to clean up the fraud in Medicare, Medicaid, and Social Services
B. Stop adding pork to every bill that comes down the pipe. Either it has merit or not.
C. Quit trying to be the worlds policeman. We waste trillions and come out with people who
still hate us and protest in the streets against America
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?
I'm 72 and would be more receptive of tough decisions if there were a level playing field and the above "special" groups had to suffer with the rest of us. Perhaps then some real solutions would evolve to solve our budget disaster.
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