The Federal Budget

The U.S. Federal Budget for 2011 had a deficit of over one-and-a-quarter trillion dollars ($1,296,000,000,000). In simpler terms, that’s an overrun of over four thousand dollars for every man, woman, and child. This only tells part of the story, since this overage is only for 2011. The overall U.S. public debt is over fifteen trillion dollars ($15,356,000,000,000), or about $49,000 for every man, woman, and child. It would take the entire gross domestic product for over a year to pay for this.

In the words of astronaut Jack Swigert, “Houston, we’ve had a problem here.”

Now, some naïvely think that an across-the-board cut in the budget will solve the problem. This is wrong on several levels. First, an across-the-board cut can’t happen, because many payments are fixed, such as interest payments (unless you want the government to default), Social Security, Medicare/Medicaid, defense spending, and other “mandatory” programs. Discretionary spending only makes up $646 million dollars. In other words, cutting all discretionary spending would only cover half of the budget deficit. If you do put mandatory programs on the table, then you’re cutting someone’s Social Security and Medicare, and you’re cutting the defense budget–which means you’d better have a foreign policy to match. Finally, making these cuts quickly will cause the short-term loss of many government jobs at a time when the private sector can’t absorb them.

What Do We Need To Do To Fix This?

Simply put, we need to bite the bullet and make some difficult choices.

Health Care

We need to get Medicare and Medicaid under control. Medical spending price increases have outpaced inflation for many years. I would argue that a big reason for this is that there isn’t free market competition helping to keep prices down. In an earlier post, I suggested the following:

  1. Laws prohibiting insurers from operating across state lines repealed, leading to higher levels of competition.
  2. People required to purchase minimum health insurance policies in a manner similar to people being required to have car insurance, with government subsidies where necessary.
  3. All insurers being required to provide these minimal policies, with restrictions on how much profit they can make from these. I don’t find prohibiting profit appealing, because the profit motive often drives efficiency, but it does need to be reasonable.
  4. When employers no longer have to provide health care to their workers, they need to pass this savings to them in the form of increased pay. These companies should make more due to improved international competitiveness, not by passing this savings onto their shareholders.

My hope is that by introducing competition into the non-Medicare/Medicaid market, the prices the government has to pay for Medicare procedures will drop as well. If not, we will have to explore more drastic measures…

Social Security

People freak out whenever someone talks about raising the Social Security retirement age or reducing benefits. I’m sorry, but one or the other has to happen if we don’t want to see a tax increase of over $10,000 per household. I don’t like it, and I’m sure you don’t like it, but this isn’t a likable prospect–it’s a necessity.

When the original Social Security legislation was enacted in 1935, about 57% of those who lived to age 21 lived until age 65. Today, that number is closer to 80%. The average number of years collecting Social Security has also increased by about three years. The obvious, if unwelcome, solution, is to gradually increase the Social Security retirement age until the system is rebalanced. The Urban Institute says that the current retirement age would have to be 73 to have the same expected years in retirement as in 1940. I don’t think we can move the finish line that much for people currently approaching retirement, as many have planned for this income at retirement, but for those further away, we need to readjust. It’s either that or raise taxes.

Defense spending

Simply put, as a nation we need to decide whether we want the U.S. to continue to be the world’s de facto policeman, or if we are willing to share this responsibility with other countries. Right now, the U.S. spends more on its military than the next seventeen countries combined. Personally, I think we should share more of this responsibility. Combined Task Force 151 has successfully reduced piracy off the coast of Somalia, and similar efforts could and should be used to patrol the high seas around the world to keep trade routes open and the world economy chugging along. The multinational effort in Libya worked to remove Gadhafi from power. The question really boils down to, “Are we willing to share the power that comes from being the world’s main military power?”

In my opinion, we don’t really have a choice.

 

Of course, there is some discretionary spending that can and should be cut. I would move much of the Department of Education’s duties back to the states and I’d take a good, long look at agricultural subsidies, just to name two examples.

One thing I wouldn’t do is make a hare-brained proposal to cut the pensions of future Congressmen when simultaneously explaining that I wouldn’t cut the pension of a family member who happened to serve in Congress before me. I promise that I will never propose or vote for decreases in benefits for your family unless those cuts, or related cuts, also affect mine.

 

Reminder: I will be on Andraé McGary’s Live and Local on WGOW-FM 102.3 tomorrow at 1:00. You can listen to the stream here.

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Filed under Federal Budget, Health Care, Social Security

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