Skip to comments.Now It's Time for the Entitlement Cliff
Posted on 01/01/2013 11:31:37 AM PST by Kaslin
As the clock winds down on 2012, the Fiscal Cliff is all anyone seems capable of discussing. Right now it appears that some sort of narrow deal has just emerged that will include raising tax rates on family income over $450,000 a year, increasing the estate tax rate, extending unemployment benefits for one year, and delaying spending cuts.
But the prospect of higher taxes and the great uncertainty that has surrounded this fiscal fiasco has been acting like sand in the gears of the complex but sputtering U.S. economy. If additional taxes are not matched by real cuts in government spending, the economically crippling tax increases will serve merely to increase the size and intrusive power of big government. In other words, the pain will yield no gain.
But the damage to the U.S. economy will result not so much from the actual cuts and tax increases that the Cliff would involve, but from blatant dereliction of duty on display in Washington which will diminish national prestige.
To some, a loss of reputation may seem to be an ephemeral and ultimately insignificant economic cost. However, the spectacle of American politicians failing to agree on budgets, spending limits, or any type of fiscal discipline can affect the credit rating of the U.S. Over the longer term, a major fall in the credit rating is likely to increase U.S. interest rates. This would add further to the pressure on U.S. debt and render the U.S. Treasury bond market as one of the greatest financial bear traps in history.
Even more threatening than the Fiscal Cliff is the far higher and steeper Entitlement Cliff, which dwarfs the Fiscal Cliff in almost every dimension. America's massive baby boom generation began entering retirement last year. As increasing numbers of workers retire over the next decade, significant strains will be placed on Social Security and Medicare, America's entitlement monoliths. It is no understatement to say that if the finances of these programs are not brought into balance, the United States will be brought to its knees financially.
Yet both parties in Washington appear content to ignore these problems. A very modest proposal by Republicans to trim Social Security expenditures (by cravenly tinkering with inflation calculations) was withdrawn almost as soon as it was introduced.
But in truth, anything short of a comprehensive resolution of the Entitlement Cliff threatens to sap the economic prospects of the United States for generations to come. At present, however, the U.S. dollar, despite its inherent fatal flaws, continues to be perceived by many as the 'currency of refuge'. In contrast, the euro, although protected somewhat by central banks, does not enjoy the full status of an international reserve currency. Therefore, the Eurozone has been forced by the financial markets to jump off the cliff and endure economic austerity.
This privileged position has conferred on Washington the vital element of time to organize viable revisions to its entitlements. As a result, plans could be made to coordinate the restructuring and reduction of government spending, borrowing and taxation. A wise government could be looking to make an orderly descent from the top of the cliff, making provisions for solid footing and safety lines. But alas, this opportunity has been left unexplored.
Though a short-term fix may have been reached, the Entitlement Cliff still looms large and descending down this precipice could seal the fate of the U.S. dollar. As a result, the ability of U.S. politicians to deal with entitlement spending will have global economic consequences of the highest order.
The shockwaves of miscalculations if made by American politicians could reverberate around the world, affecting international financial markets and threatening the continued viability of fiat currencies.
Well at least they made a deal and can run the government for an additional 8 days now.
And it adds $4 trillion to the deficit!
Wow. Eight entire days. And they did absolutely nothing to even slow the rate of spending.
The Party of federal government interests versus the Party of local government interests. Hoard popcorn, and watch the austerity measures show ahead.
There will be cuts sooner or later, even if after the repudiations of debt and haircuts for bond investors. “In this corner, we have the...socialist middle class! In this other corner, we have...the other socialist middle class! The fight...of the century!” [In the suburbs, interlocking fire ensues.]
The GOP controlled Congress and Dubya certainly didn’t help matters when they enacted Medicare Part D. Call me when Republicans talk of repealing that nonsense - then I’ll believe they’re serious about dealing with entitlements.
Always the same tired old record: baby boomers, baby boomers, baby boomers.
How about a few questions:
What if we made the Social Security disability rules the same as they were in 1992? Wonder how much the Social Security crisis would ease? (Nothing to do with baby boomers).
As a matter of fact, what if we made ALL the social security eligibility rules the same as they were in 1992?
How about if we MANDATED that all Social Security spending and Medicare spending MUST be reported in one of two categories:
Money paid to recipients that paid into the system for at least one year; and
Money paid to recipients that have NEVER paid into the system. (Again no mention of baby boomers)
Wonder how different all these problems would look?
Even more puzzling, all those baby boomers have been paying higher S/S taxes since 1983 to create a 2.6 trillion trust fund. Wonder where that went?
I’m on social security and medicare and if you think that I don’t pay for my medicare, including part D coverage. You are greatly mistaken, mister.
When are you getting over your BDS?
GO SEE A SHRINK. You have a serious problem!!!
This is how all government programs go. They pit groups of people against one another in a scramble for the diminishing pot of money. All the money that was collected was spent, leaving the next generation to pay for current retirees. The baby boom generation will not collect what they paid into the system, unless younger people are taxed beyond their ability or willingness to pay. The ponzi scheme has come to an end.
Socialism makes people believe they can depend on government instead of themselves and their families, and makes it expensive to have children. This is a recipe for the disaster we see now with declining birth rates, a growing number of elderly, and declining wealth production.
Nothing will be done about it.
Politicians are not going to vote to cut Grandma’s Social Security check.
It would be a lot easier to cut it for future retirees but that’s not to going to happen either.
A lot of people receive government benefits and they vote.
True. And the further truth is that "fiat currencies" are doomed from their start. No fiat currency has ever survived. Our Constitution calls for gold and silver to be money. The Federal Reserve is unconstitutional and ought to be prosecuted under the RICO law.
Why am I not surprised you claim you “paid for it.” Only the truly ignorant would believe such nonsense. Newsflash - the taxes you paid into those programs was spent on previous retirees. The govt bennies you are getting NOW (which by the way are worth more than your piddling buy in, come from hard working men and women. It’s legalized theft put in place due to Dumbo Dubya and a GOP controlled Congress. But keep crying about BDS. The rest of us will wait for the GOP to call for Medicare Part D’s repeal.
I am talking about my medicare. You know it all.
TRY to understand this very simple truth: THE MONEY YOU WERE TAXED FOR “YOUR” MEDICARE WAS SPENT LONG AGO ON OTHER RECIPIENTS. THE GOVT BENNIES YOU ARE “GETTING BACK” ARE FROM CURRENT TAXPAYERS. THIS IS CALLED THEFT. YOU ARE A THIEF. KEEP YOUR HANDS OFF MY MONEY!