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Thursday, March 11, 2010

The Dirty Four Letter Word That's Killing Us

It's a dirty four letter word. M-A-T-H. On a federal level, it's killing us.

Did you know that social security is running at a deficit this year, for the first time in a quarter century? According to Senate Majority Leader Harry Reid, that wasn't supposed to happen for another fifty years. Oh well. That's what 2.7 million new claims and a deepening recession will do. Instead of borrowing from social security, as we've been doing for years, we will now have to use general revenues just to keep it afloat.

That's a problem, but it pales in comparison to Medicare, where the deficit is a whopping $36.3 trillion, give or take a trillion.

When pols speak about our national debt, they conveniently ignore the cost of Medicare and social security, resulting in a an artificially low figure of somewhere around $13.5 trillion, although Obama's latest budget will add between $8.5 and $9.7 trillion to even that figure over the next ten years. When you add everything together, the real national debt, right now, is close to a $56.4 trillion sinkhole.

David Walker, who served as Comptroller General and headed the nonpartisan GAO under both Presidents Clinton and Bush, has a sobering assessment, along with some suggestions. Here are some excerpts from one of his recent speeches.

First and foremost, our nation's financial condition is worse than advertised and it's deteriorating with each passing day. We face a $60 plus trillion dollar financial sinkhole that is growing rapidly.
From a cultural perspective, it's pretty clear that beginning within the past 2-3 decades, America and many Americans became addicted to current consumption and debt. In addition, many public officials have come to accept deficits as a normal and acceptable thing. Fortunately, Americans are waking up and changing their ways but Washington hasn't seen the light yet.

[U]nlike at the end of World War II when we financed our own national debt, America's mortgage is increasingly being held by foreign lenders. This dangerous dependency is not in our longer-term economic, foreign policy, national security or domestic tranquility interests.

To put our nation of a more prudent and sustainable path, we must take a number of policy related actions. For example, we need to re-impose tough statutory budget controls, tougher than the ones that existed from 1990-2002. These budget controls should take effect after we turn the corner on the economy and make progress on unemployment. We should also seek to stabilize the amount of the nation's debt as a percentage of the economy.

We need to take steps to make Social Security more solvent, sustainable, secure and more savings oriented. This includes taking such steps as strengthening the benefit levels for the near poor, making the benefit structure more progressive (e.g., progressive wage indexing), encouraging people to work longer, raising the taxable wage base cap, and implementing a supplemental, automatic and payroll deduction based savings account.

With regard to Medicare, we need to separate the issue of eligibility for participation from the amount of taxpayer subsidies one might be eligible for under Medicare’s voluntary programs (i.e., Parts B and D). The truth is, the federal government has over promised in many areas, including Medicare.

For example, individuals making well into six figure annual incomes should not receive taxpayer subsidies for their decision to voluntarily enrolls in Medicare's Part B (i.e., physician and outpatient) and D (i.e., prescription drugs) programs. They do under current law.

From a broader perspective, we must take steps to achieve real and comprehensive health care reform in installments and over time. These health care reform efforts should focus on four key dimensions: cost, coverage, quality, and personal responsibility. While, in my view, we need to achieve some level of universal coverage, that level of coverage must be appropriate, affordable and sustainable. However, in my view, we should focus on reducing and controlling costs first and foremost. After all, if there is one thing that could bankrupt America, it's out of control health care costs.

To do so, we must, among other things, pursue setting a budget for federal health care costs, move away from fee-for-service payment systems, and better target health care tax preferences for employer paid health care and taxpayer subsidies applicable Medicare's voluntary programs.

With regard to the current health care reform effort, in order for any health care reform legislation to be considered fiscally responsible, it should meet four key tests based on reasonable and realistic assumptions. First, it should pay for itself over 10 years. Second, it should not add to deficits beyond 10 years. Third, it should result in a significant reduction in the tens of trillions of unfunded health care promises that we already have. Finally, it should result in total health care costs as a percentage of the economy that are lower than the status quo.

The current health reform bills in the Congress do not meet all four of these tests. In fact, the ones that it does meet are based on questionable assumptions and the CBO has noted a number of related concerns and qualifications in connection with its cost estimates that the proponents of reform conveniently fail to note. Furthermore, some of the proposed Medicare revenues and cost reductions will be used to fund additional health care coverage rather than to enhance the government’s capacity to deliver on the Medicare promises that it has already made.

One thing is for sure, taxes are going up over time on a lot more people than those who make $250,000 or more. Why? Because of a very simple and yet increasingly troubling four letter word in Washington. And that word is - MATH!
Update: Within minutes of posting this entry, one of my astute readers gave me a -1 for plagiarizing from Terri Gross' Fresh Air. Yesterday's broadcast is, in fact, the inspiration for this thread. Although I spent most of the night independedntly researching and writing this blog, I should have noted that source. In fact, the link to that broadcast is much more detailed than this thread, and includes an excerpt of Walker's most recent book.

43 comments:

jbs said...

-1 for plagiarizing from Fresh Air.

Anonymous said...

Social Security has become the unlitmate Ponzi scheme. And when the so-called Bush tax cuts are permitted to expire, the marginal tax rates for all income earners will increase dramatically. I like to hear Charlie Dent's take on this. All income levels will be devastated.

Bernie O'Hare said...

God if I were plagiarizing, I would not have spent most of the night writing this post.

I did get the idea for this post from listening to Fresh Air with Terry Gross yesterday. He was talking mostly about China, but his comments about our finances certainly was my inspiration. So I spent a few hours researching and writing this post. It's original.

But I think I should note that I did find out about this by listening to NPR.

Anonymous said...

He makes valid points. I would hope they are not to politicized. If we do nothing about health care it is estimated that by 2020 at least 1/3rd of all our spending will be on healthcare. It is an unsustainable burden. So while I agree with him on his overall points, I do believe that health care reform is crucial to future economic stability.

He is right on that from the early 80's on we in America became fixated on instant gratification and the power of plastic credit cards.

One point he makes that I will be interested in gaging support for is the need to raise taxes.

While it is going to be easy for some pol's to scream about no healthcare reform, lets see how honest they are when we talk about taxes.

The fact is even shrewd cost cutting won't be enough. The nation has been on a 30 year bender and the bar tab is due. We will need tax increases at the federal and state level. That in conjunction with levelheaded cost containment might get us out of the woods within ten years. Of course that means no more "wars of liberation" that we don't pay for.

Anonymous said...

Currently traveling on business in St. Louis. Had no idea the president would be in town; let alone speaking at a Claire McCaskell fundraiser at my hotel. Lots of protester on 8th Street outside the Renaissance Grand from each side. Best sign on the street: "Here Comes Santa Claus."

Anonymous said...

Let the politicizing begin. Well it was nice while it lasted.

Bernie O'Hare said...

Walker served under both a Democrat and a Republican, and his remedy is a bitter pill to swallow, but I think we have no choice.

First, we have to control spending, and that means the way that social security and medicare benefits are computed, has to change. Walker notes that these mandatory benefit programs " took up more than 60 percent of the $3 trillion federal budget for 2008. That means more than $1.8 trillion a year flowed from Washington on autopilot, essentially out of the government's control." People probably could and should work a little longer before qualifying for social security. He is being perfectly reasonable when he suggests that people w/ 6 figure incomes should not be suubsidized for their decision to enroll in Medicare.

At the same time, Walker believes we need to raise taxes. There's really no way around it.

If we do both, we might get our borrowing from China under control before our dollar is completely worthless.

No question that our health care system is a big part of this financial morasse. But as Walker notes, neither of the proposals is adequate and will end up costing us instead of saving us money, and that should be one of the goals.

Anonymous said...

Doesthe 2.7 million new caims include those that are signing for S.S.I.,if it does,then need a better check on those that are applying which includes many that paid very little into social security. Check the lines at the Alletown Social Secuity office in Allentown there to sign for S.S.I.

Anonymous said...

...and you're realizing this now? I'm going to call you Rumplestilskin. Thank God we don't have any unnecessary wars that suck billions of dollars from the budget each year.

Anonymous said...

What's sad is that when this country falls, and that possiblity is looking more and more likely, it will do so as a result of a failure to take reasonable (and in most cases relatively painless) steps to correct problems: means-testing SS, privatizing Medicare while keeping a public option for Seniors +65, regulating the borders, etc.

Anonymous said...

I remember the "evil" George Bush and the "extreme right winger" Rick Santorum's attempts to reform social security cast as a cold hearted attempt to destroy the system and rob old people of their benefits by the Democrats. A few short years later the chickens are coming home to roost. A hard rain's gonna fall.

Scott Armstrong

Anonymous said...

Means test Social Security? Bullshit! I've been in the top federal tax bracket for the last 16 years. I've also contributed to my Social Security account every step of the way. Now, because someone determines I have enough money, they'll change the rules and prevent me from collecting what is rightfully mine. SSI has become a poorly managed welfare program. And I'm a rich, cold-hearted bastard because I don't want to play along with the semantics of the worst run transfer program in American history. And now we want these same brain surgeons to do the same to health care? That should work.

Anonymous said...

Public option healthcare would help. We'd save a lot of money, get better care and our manufacturing sector would be able to compete with foreign countries for once since it's mostly because of our inefficient and expensive healthcare system that makes us unable to compete. If you don't make anything than you can't make any money to pay off debt. We don't make anything anymore.

Anonymous said...

Good old Scott can't let go of his Jihad Republicanista agenda.

Right Scott, the Bush Santorum fix for Social Security was to give the money to Bernie Madoff and friends and we see how well that worked. Please if you are going to continue the Glenn Beck wannabe drama pick a better point.

I mean Rick Santorum, really?? Isn't he still worried about man on animal sex coming with rights for gays.

Veritas

Anonymous said...

Yes, health care is a large part of the equation. Very large. Single payer is the only logical solution and the only one which will actually save us money. Lots of it.

And let's not ignore the staggering defense budget. Two wars. Military presence in nearly every country in the world. We spend billions "protecting" countries for no apparent reason. Bring all the troops home and cut the DoD budget by at least 25%.

Anonymous said...

And another thing. I'd like to privatize Social Security but only of Scott Armstrong isn't grandfathered and they do it 6 months before his retirement.

PT Barnum said...

"Single payer is the only logical solution and the only one which will actually save us money. Lots of it."


I love being proven correct.

Anonymous said...

Any person with half a brain would realize the way to cost savings is to eliminate the for-profit middleman completely. Anyone ignoring this simple fact is truly a sucker, PT.

Anonymous said...

"And let's not ignore the staggering defense budget. Two wars. Military presence in nearly every country in the world. We spend billions "protecting" countries for no apparent reason. Bring all the troops home and cut the DoD budget by at least 25%."


Try re-reading the post. Cutting the DOD budget in half wouldn't make a dent in the m-a-t-h that properly identifies SSI and Medicare as the real problems. And now that Afghanistan and Pakistan is Obama's war, you're not permitted to criticize.

Anonymous said...

Wow all of the anonymous progressives (/staffers?) are busy this morning on the blog peddling the same old wares. FYI, in case you haven’t noticed the American public is moving swiftly away from your big government solutions. In one short year the reality of team Obama’s progressive solutions has hit the public like a cold slap on the face.
By the way, I am a Republican for a reason and I don’t waiver from that. Why, in light of what the Democratic Party presents America as leaders and solutions, should I be a Democrat?

Scott Armstrong

Anonymous said...

Creating a giant new entitlement will solve the debt and spending problem, who can't see the logic of that. Republicans are just stupid fools of the rich people who are out to get the little guy.Who doesn't see this?

Allentown Democrat Voter

Anonymous said...

Scott Armstrong - Really? Gallup Poll, March 4-7

"Would you advise your representatives in Congress to vote for or against a healthcare reform bill similar to the one proposed by President Obama?"

45% Vote For
48% Vote Against
7% No opinion

So I'm not really thinking there is a huge backlash that you red-faced tea partiers seem to purport.

The American people are not dumb. They know which party destroyed this economy. They know which party is obstructing and which party simply says NO.

Bernie O'Hare said...

This should not be viewed as a partisan issue or the fault of either party. Until we get past the blame game, we will solve nothing. Yes, Semocrats shriek at shrinking any entitlement, no matter hw good the idea may be. Yet Bush was our biggest spender since Lyndon Johnson. The truth is that both parties got us into this mess and only both parties can get us out.

We have to reconfigfure entitlements more equitably. But we also have to raise taxes.

To do either will take a bipartisan effort, so that no candidate can cmiam that this or that Congressman hates the poor or that this or that Cogressman is an irresponsible tax and spender.

The reality is that ideology means nothing when it comes to mathematics, and our problem is mathematical.

Looking To Escape said...

The reality is that ideology means nothing when it comes to mathematics, and our problem is mathematical.
.
The Democrats (such as the beloved Nancy Pelosi) have called both Social Security and Medicare an unqualified success.
.
I am not sure how much can be done or fixed with such a mindset.
.
As some economists have said, they have seen America's future and it's Greece, a country that is having fiscal discipline forced on it by others.

Anonymous said...

Did you blog about the deficit the 8 years of bush?

Anonymous said...

where are your posts about this during the bush era?

Anonymous said...

Bernie,

Do you think we will ever find out the breakdown of who is filing all these SSI and Welfare claims? Times are indeed tough across the board, but how can we continue to float these people on the backs of hardworking citizens. I would love to know the percentages and how many people are illegal immigrants.

Anonymous said...

"Third, it should result in a significant reduction in the tens of trillions of unfunded health care promises that we already have."

But any real attempt to do so will be labeled extremist. SS is where it is DESPITE the last bipartisan, moderate, compromising solution to fix it.

Anonymous said...

It's not math, it's irresponsibility, selfishness and greed.

You have to be a unadulterated idiot to not know you cannot constantly spend more than you take in, keep borrowing from your family, then friends and inevitably those who would just as soon see you dead.

Yes, everyone did it. Not everyone will undo it. The Tea Party and a few conservatives still labeled R and D will push the agenda for a while, they will be villified and mocked. Then the two corrupt parties will congratulate themselves on a bipartisan quelling of the little uprising, vote to raise the debt ceiling again, and sell the future of yet another generation to our enemies.

Year after year, the feckless panderers are sent to Washington, to State capitols, and into local government. The country, in doing so, says "Screw the future, screw our kids, I want mine, and I want it now."

The blood of so many Patriots, who died earning and defending our freedoms, unselfishly spilled for the selfish whiners who would squander their birthright.

Can you imagine what they must be thinking, looking down on this mess?

Anonymous said...

SSI and Medicare recipients are your parents and grandparents and mine. Painting these people who paid into the system their whole lives as "floating" on the backs "of hardworking citizens" is repulsive.

It amazes me how some on the right just have absolutely no clue about other people not in the cubicle next to them.

And yes, those recipients of Medicare and SSI DO find the programs an indisputable success.

Anonymous said...

I suggest a blue ribbon panel of the nation's top thinkers, allocate several million for flying in academics, captains of industry, and retired Senators. Give them comfy office space, staff, logistical support. The solution will come to us in an onerous pontification, detailed in a bound 10,000 page documentation of their noble output. We can then discuss, debate, villify and exaggerate the merits before finding a way to find common ground and compromise.

Yeah, that's the ticket.

Anonymous said...

Medicare and social security would be fine if they had not been raided over the years by legislators of both parties. Also fancy footwork on what is and is not counted as debt has been a gift from both parties.

Until most Americans understand that the problems we have are the result of a Washington mindset and not a political party we are in trouble.

Medicare has been a huge success all the revisionist history in the world will not change that if one is to review the facts. One big problem was creating medicare part B while cutting taxes a Republican- Democrat Production.

Enough bullshit, figure it out!


Veritas

Anonymous said...

In 2000 we had a surplus. The inancial nightmare began with Bush, overwhelmingly re-elected in 2004 by idiots who were against gay marriage. Well Republicans, everything noted here is a very expensive price to pay just to two guys you'll never meet can't wear rings when they $##@ each other in the privacy of their own rooms. The important thing is that Bush is comfortable in his restricted community and we're all screwed now.

Anonymous said...

Retired ASD teacher here.

Why do some get entitlements while others do not?

Anonymous said...

You mean like school teacher pensions?

Anonymous said...

Like triple dippers like Stoffa and Grucela.

Lighthouse said...

The posts have focused on the entitlements themselves. I focus more narrowly....

"[U]nlike at the end of World War II when we financed our own national debt, America's mortgage is increasingly being held by foreign lenders. This dangerous dependency is not in our longer-term economic, foreign policy, national security or domestic tranquility interests."

I've been pointing this out to students for several years. In a way that High Schoolers understand: if you work and make your own money, you have a lot of independence. However, if you have to rely on someone else for your money (mom, dad, significant other, etc) you lose part of your independence. Your actions/decisions become more limited in relation to the amount of dependence. Who controls the money will always have the last word.

Yet we "charge" our entitlements and our wars....unsustainable in the long run.

Besides China, et al controlling more of our debt, if countries stop pegging currency to the dollar, watch the impact.

Add to this drain of governmental debt our trade deficit...national wealth going in the wrong direction.

Our national financial decisions have not been very patriotic. I'll leave it at that.

Bernie O'Hare said...

Although everything you say is accurate, let me point out that Walker himself acknowledges that we are still the largest exporter in te world. I was surprised by that statement, which was made during the fresh Air broadcast.

One other point, and here Walker is wrong. he speaks derisively about two "undeclared" wars. What he does not understand, as a bean counter, is that we no longer declare war. Since WWII, none of our conflicts have been declared wars. You know why? Because doing so would violate the UN Charter. So if we decide to use force somewhere, we either get approvial form the UN or we do it ourselves and will ask Congress for the funds, but will never ask for a declaration of war.

Anonymous said...

Which is why these wars are unconstitutional. The war powers acts have been abused by Presidents for decades. it is time to revoke the Acts and obey the Constitution.

Bernie O'Hare said...

The Constitution gives us the power to enter into agreements with other nations. That's the UN Charter. Under that charter, which is designed to promote peace, we may not declare war unilaterally on anyone. We can only make war as authorized by the UN.

Anonymous said...

"We can only make war as authorized by the UN."


Bawhahahahahahahahahahaha! How ridiculously funny. Thanks for the laugh.

Anonymous said...

Bernie, It is no wonder that social security is going broke faster than expected, it has become the new welfare. It is unbelievable the number of SSI reciepiants there are who are young and appear to be able bodied.Some tell me that thy are depressed. I'm depressed thinking about it. I do believe in a safety net for those less fortunate,but ???

Anonymous said...

Being a career politician has been teh greatest job in this since the end of WW2. If you were an R you promised tax cuts (ie gave people something for nothing) and if you were a D you gave them benefits (again something for nothing). And, at the same time, you were able to give yorself big, fat benefits (yes, Scott, idealogues like Santorum still are taking as much as they can from the public coffers), and start wars while handing out no-bid contracts to your friends and supporters (Halaburton, Blackwarter, etc.).

Well, now the party is over. Unfortunately when the current crisis started and our leaders should have become adults again, they did not.

Reality is that at all levels we will have higher taxes, less services, and less benefits. Look at what is happening in the KC schools as an example of what is to come.

If you want to see a (the)politician who is doing the right and necessary things, just look to NJ and Gov. Christie. I have added a link to two links on this subject. The first is a broadcast of a recent speach Christie gave to 200 NJ mayors. The other is a commentary on this topic.

And please don't say that Christie is doing this because he is a R and not a D. He is doing this because NJ is at the point of crisis, it needs to be done, and he is teh adult who showed up to lead the childern (read: typical career politicians) to where we need to be led.

http://njn.net/television/webcast/ontherecord.html

http://globaleconomicanalysis.blogspot.com/2010/03/governor-christie-time-to-hold-hands.html

Publius