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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We need to change the way Washington works. Consider that we have 535 elected ego-maniacs whose full time job is to write legislation. Given the open checkbooks and a lot of free time they are going to find something to do. That almost always means spending our money.
Congress needs to be limited to 90 days per year, or 6 months every other year. That is plenty of time to get the nation's business done and not enough time to think up idiotic ways to spend more money. If they don't pass a budget, they don't get paid.
Their retirement and benefits need to be reduced as well. Spend 2 years as a one-term congressman and get retirement benefits for life? That is insane! Does anybody know how much we spend on legislators including all those ex-legislators collecting benefits? That would be a great place to trim the budget, but who will propose it?
Money does not grow on trees. Humankind makes it. It is an illusion.
The only real issues is the ratio of production,workmanship and value of ownership. This ratio can always be adjusted to make everyone comfortable, but the need to make and control resources, to keep some in castles and some in the fields will always prevail.
The value of money is nothing else but an illusion...........
It would be a waste of time to delve into all the reasons why we're in the situation we are. Suffice it to say that it's time to start preparing for a catastrophe the likes of which we have never seen. Stock up on food, water and weapons, because when this debt bubble bursts, it will make the housing bubble burst in 2008 look like a barely noticeable blip on the economic radar. There will be widespread chaos and unrest.
Heed my words.........SHTF is coming, and our politicians know it.
To start out with Obama admin NEVER had a budget to follow because of Harry Reid & the senate!
2nd We need to tell congress that if they do not pass a budget in a month, they forfiet their pay until they do, not this crap about it going into an escrow account.
3rd They need to cut spending. How about 5% from every Federal agency, They can tighten their belts like the rest of the country
well to all of you talkign about how they line the pockets of there friends, remember you voted for them. And yes we pay into ous SSI, vets do there 20 years and secure our country most on patriotic duty so never deny them what they are due. remember the guy you voted in who failed his job gets 100% retirment after one term. social programs are state issues or those who raise money. Ive seen way to many persons in there 20s collecting on what they can work for to get for themselfs, Our system is broke, we lay blame on the other side instead of fixing the problem at hand Take ownership. Congrass has a responcability to control the purse they have hired a private company to manage that. They need to actually review spending stop waisting and stop sending 60B in aid. The past two leaders of our natian have payed a task force to see were the money is spent. We cant afford it. And lets face it the tax increase would not be a increase its going back to what it should of been. Nafta is a great tax break for other nations we need to revoke it. If you dont think so look at a shipping yard with the containers stacked up. Most of all you as a American need to read our Declaration of Independence.
we pay millions to abortion clinics. millions to those who don't want to work( there s difference between wanting and can't find and just don't want to work). paying countries money who blow up our troops and other people. bailing out banks who want even give you a loan, etc. The picture here is all wrong. Social security to people who aren't even citizens. stand up america. you had your time doing the election but you failed. And those who thought a change will come thru this 2nd term hate to say the word but it's he gotcha again. stop being like the dog who saw the reflection of the bone in the water. and drop it for what he thought was a bigger one. well it isn't and it never will be. HB out
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