Budget Insanity

Townhall.com ^ | July 11, 2012 | John Stossel

[Kaslin]

Last year, Congress agreed to $1.2 trillion in automatic spending cuts, unless politicians find other things to cut. They didn't, of course. So now, with so-called sequestration looming in January, panic has set in. Even the new "fiscally responsible" Republicans vote against cutting Energy Department handouts to companies like Solyndra and subsidies to sugar producers. Many claim that any cut in military spending will weaken America and increase unemployment.

It's another demonstration of the politicians' addiction to spending -- and how we are complicit. "One more infrastructure bill" or "this jobs plan" will jumpstart the economy, and then we'll kick our spending addiction once and for all.

But we don't stop.

For most of American history, government was tiny. But since Lyndon Johnson's Great Society and the promise that government would cure poverty, spending has gone up nonstop. This is not sustainable.

Progressives say: If you're so worried about the deficit, raise taxes! But it's a fantasy to imagine that taxing the rich will solve our deficit problem. If the IRS grabbed 100 percent of income over $1 million, the take would be just $616 billion. That's only a third of this year's deficit.

It's the spending, stupid.

Even if you could balance the budget by taxing the rich, it wouldn't be right. Progressives say it's wrong for the rich to be "given" more money. But money earned belongs to those who earn it, not to government. Lower taxes are not a handout.

That's the moral side of the matter. There's a practical side, too. Taxes discourage wealth creation.

Even if you think -- despite all evidence -- that government spends money more usefully than people in the private sector, there is a limit to how much government can tax before people work less or flee.

Progressives claim a small increase in tax rates won't stop the wealthy from producing. But some would stop. When the top marginal rate was 90 percent, actor Ronald Reagan worked just half the year. He said that woke him up to the damage that high taxes impose.

Higher taxes give rich people and politicians more reasons to collude. The rich make contributions, and politicians pay the rich back by giving them tax loopholes.

That's a big loss to America. That money and creative energy spent on figuring out taxes might have gone to build new products, make music, cure cancer or ... who knows what?

Politicians promise to balance the budget by getting rid of what is wasteful, redundant or unnecessary. There's plenty of that, but they have promised to eliminate it for years. They cannot. It's just in the nature of the beast. Centrally planned monopolies do things that are wasteful, redundant and unnecessary.

What will bankrupt us first are the wealth transfers to my generation: Medicare and Social Security

When FDR started Social Security, most people didn't even live to age 65. Today, we average 78 -- and we baby boomers demand all the cool new stuff that modern medicine invents: anti-cholesterol drugs, hip replacements, etc. And we don't want to pay for most of it because we've been trained by government to assume that we're entitled to these things for free, or nearly free. We paid into Social Security and Medicare for our entire working lives, and damn it, we're entitled to get our money back!

Few of us realize that most of us get back up to three times what we paid in, that politicians have promised Social Security and Medicare recipients an impossible $46 trillion more than will exist and that our sense of entitlement will ruin America much faster than foreign aid, subsidies for NPR or foreign wars ever will.

Amazingly, we could grow our way out of debt if Congress simply froze spending at today's levels. That would balance the budget by 2017. If spending growth were limited to just 2 percent per year, the budget would balance by 2020!

But the politicians won't do even that.

It's depressing writing this. But it's not hopeless. There are examples of fiscal sanity we can follow -- if we have the will.

[kabar]

However, if you had paid $100 per month into a bank account that earned just 4% interest from age 21 to age 65, you would have paid in $52,800 and gotten back $186,247.14.

That is not the way Medicare works. It is a pay as you go system. Today's retirees get their benefits paid by today's workers. Medicare Part A has been in the red since 2008. By law, the premiums paid for Medicare Parts B and D pay only 25% of the costs. The rest must come from the general fund.

Medicare is unsustainable as currently structured. It will consume the entire federal budget if not changed. You can rationalize this all you want, but Medicare beneficiaries get on average three times more in benefits than they paid into the system.

And those costs will go up since medical costs are increasing faster than inflation. And we have an aging population with 10,000 people retiring every day for the next 20 years. By 2030, one in five in this country will be 65 or older. And by 2030 there will be just two workers for every retiree compared to 3.3 today and 15 to one in 1950.

[cuban leaf]

—The entire Congress needs to be prosecuted under RICO statutes.—

They really are just doing what “we” elect them to do. They are not the problem. “We” are the problem.

[kabar]

But, my point is: Do not blame the “boomers” for this mess. It started when the Social Security System was originated. No one was “asked” if they wished to participate.

The boomers are relevant because of their numbers in an aging society. The only blame I would ascribe to them and it applies to others as well is that we have been electing politicians who keep on promising us benefits that can't be sustained. The baby boomers are enjoying those benefits now, but their progeny will not because we can't afford it.

And many baby boomers don't want any changes to Medicare or SS. The Dems are still using scare tactics to frighten seniors when folks like Paul Ryan propose even modest changes to save the system.

The question is what are the political consequences for not being able to deliver on these promises? Will the people take to the streets like they did in Greece demanding that they still want their stuff regardless of the fiscal consequences? The politicians have been kicking the can down the road for a long time, including Ronald Reagan and his Faustian deal with Tip O'Neill in 1983 to keep SS solvent. Now we are running out of road.

[cuban leaf]

—That is not the way Medicare works.—

Yes. I was talking about SS. As stupid as SS is, Medicare and Medicaid are worse. Both should be eliminated. Period.

[kabar]

That is the way SS works as well. SS has been running in the red since 2010, i.e., it has been paying out more in benefits than it receives in revenue.

We’ll start with the basic numbers. The nonpartisan Congressional Budget Office issued its most recent projections for Social Security’s income and outgo Jan. 26, along with its twice-yearly "Budget and Economic Outlook." What those numbers show is that Social Security ran a $37 billion deficit last year, is projected to run a $45 billion deficit this year, and more red ink every year thereafter.

Source: CBO "Combined OASDI Trust Funds; January 2011 Baseline" 26 Jan 2011. Note: See "Primary Surplus" line (which is negative, indicating a deficit)

Matters are even worse than this chart shows. In December, Congress passed a Social Security tax reduction. Workers are temporarily paying 2 percentage points less, from 6.2 percent to 4.2 percent, in Social Security payroll taxes this calendar year. Since the government is making up the shortfall out of general revenues, CBO’s deficit projections for the trust funds do not include that. But CBO’s figures predict that the "payroll tax holiday" will cost the government’s general fund $85 billion in this fiscal year and $29 billion in fiscal year 2012 (which starts Oct.1, 2011.) Since every dollar of that will have to be borrowed, the combined effect of the " tax holiday" and the annual deficits will amount to a $130 billion addition to the federal deficit in the current fiscal year, and $59 billion in fiscal 2012.

[expat2]

I believe that the only way we will ever get spending under control is to make it easy for the politicians:
1. Either a return to say the 2006 budget, or a 20% across-the-board cuts to all items in the budget, AND 2. The budget in future years is the same as this first year in constant dollars; during years where revenues exceed the budget, the excess goes 50% to a rainy-day fund and 50% to paying off debt.

This makes it as easy as possible for the politicians (but still difficult) since they don't have to take the blame for specific cuts, and also has the virtue of forcing the decisions where to cut down in the hierarchy to where they can be made most efficiently.

[cuban leaf]

Actually, I was just addressing the point that it is somehow unreasonable for people to expect to get three times as much from SS as they put in when, in fact, they would have gotten MORE back if they had just invested the money or even put it in CD’s. That’s all.

You and I both agree that it’s gonna collapse of its own weight. :-)

[expat2]

That analysis is useless, unless you use constant dollars. $100 was worth a lot more in 1972 than it is in 2012.
You should really do a discounted cash flow analysis using interest rates as they were during the pay-in years. That would show that it is close to 1:1, not 3:1.

[kabar]

BS. Medicare is not a savings program. And benefits have been increasing faster than inflation. Try comparing the costs of a day in the ER in 1972 to one today.

Premiums for Medicare Parts B and D only cover 25% of the costs. The rest must come from the general fund.

[TurboZamboni]

There’s a reckoning coming soon.

I wonder who will get the first massive FedGuv Inc. bailout, CA or IL ? which is more connected to the White Hut? CA has more electoral votes...

[aces]

It could not be sustained unless there was some honesty infused in the game..when America was about earning wealth, debt was avoided, and rainy day funds could be accumulated it was possible to manage..those days have long gone..the shell game falls before our eyes..it already has fallen , now it is being propped up by those who know it has fallen to keep panic from spreading..
the bright side is since it’s a shell game it never was real anyway...man’s reality far from real...come Lord..
It is real only in how we perceive it affects us, too bad society has forgotten the important things, food , water, faith, medical and turned into a plastic wonderland of BS..

[Texas Fossil]

Now we are running out of road.

Yes. The Plane is moving at a high rate of speed approaching the end of the runway with no chance of reaching take-off speed.