Last night, Tea Party Patriots highlighted some policy ideas by liberals that are designed to prevent some overspending as the cost of entitlements continues to soar. These proposals all had significant flaws, but they were a good reminder that the fiscal facts are not lost on all proponents of Big Government.
Unfortunately, some still refuse to acknowledge the fiscal facts. From a front-page post on the prominent blog Daily Kos, which commented on the attempts by Republicans to bargain on entitlement reform:
Is the Republican strategy to try to create leverage for entitlement cuts a pipe dream? Not when Democrats keep offering them up as deal sweeteners. So far, it’s just been the insanity of an extreme Republican House that’s too distracted by trying blow things up to recognize when the Democrats are giving them a big, juicy, gift.
This post (slight language warning if you follow the link) highlights the major flaw in certain political circles: entitlement reform is a “gift” to Republicans. However, the post’s author – Daily Kos Senior Policy Editor Joan McCarter – ignores a number of basic financial facts:
1. First, as Senator Rand Paul (R-KY) pointed out last year, entitlement reform is not a gift to, or compromise with, Republicans. It is simple mathematical necessity. Compromise takes place when opposing principles or ideas collide, and both sides must back down from hard and fast positions. The unaffordability of the entitlement state is not an issue of compromise or gift-giving, and for McCarter to frame it as such is inaccurate.
2. It’s not just fiscally conservative Senators who are calling for changes to retirement programs. According to the Treasury Department, not reforming Social Security and Medicare will be costly:
Between 2022 and 2039, however, increased spending for Social Security and health programs6 due to continued aging of the population and anticipated rising health costs is expected to cause the primary deficit-to-GDP ratio to steadily deteriorate, reaching 2.3 percent of GDP in 2039. After 2039, the ratio is projected to slowly decline to 1.7 percent of GDP in 2087 as the impact of the baby boom generation retiring dissipates.
Note that these estimates do not include interest payments, which were over 12% of the budget in 2011. Treasury expects interest payments to rise dramatically over the next few years and decades.
3. What is the cost of delaying reforms? According to Treasury, timing is very important:
It is estimated that preventing the debt-to-GDP ratio from rising over the next 75 years would require some combination of expenditure reductions and revenue increases that amount, on average, to 2.7 percent of GDP over each of the next 75 years. The timing of changes to noninterest spending and receipts that close this “75-year fiscal gap” has important implications for the well-being of future generations. For example, relative to a policy that begins immediately, it is estimated that the magnitude of reforms necessary to close the 75-year fiscal gap increases by nearly 20 percent if action is delayed by 10-years and for more than 50 percent if action is delayed 20 years.
In plain English, Treasury is saying that today’s efforts to reduce future deficits would have to total 2.7% of $15.6 trillion, or about $421 billion, every year, for 75 years – and as inflation and GDP grow, this number would have to rise.
This is equivalent to cutting over 10% of the federal budget every year.
Each poster at Daily Kos is an independent writer, so there is infrequently disagreement among the front page writers when it comes to policy. However, most posts on Daily Kos addressing the topic of deficit reduction fit into four categories: It’s not a problem and thus doesn’t deserve attention, cut military spending, raise taxes on the wealthy, and cut benefits for wealthier Americans. While Tea Party Patriots supports cutting military spending where possible, and even agrees that means-testing is acceptable (short of Social Security privatization or handing Social Security and Medicare over to the states, that is), means-testing is unlikely to be able to solve the problem on its own. Neither will cutting military spending – the amount of federal spending on the military has dropped significantly over the last few decades, in almost a reversal of the growth in entitlements.
The most popular solution for deficit reduction on Daily Kos seems to be raising taxes. Yet even if taxes had gone up in the fashion upon which President Obama campaigned, the increase in revenues would not have been enough to cover even 90 days of spending. Additionally, as Walter Williams noted in a column last year, taxing the so-called “rich” at 100% wouldn’t even come close to funding one year’s worth of federal spending:
Households earning $250,000 and above account for 25 percent, or $1.97 trillion, of the nearly $8 trillion of total household income.
If Congress imposed a 100 percent tax, taking all earnings above $250,000 per year, it would bring in about $1.9 trillion.
That would keep Washington running for 190 days, but there’s a problem because there are 175 more days left in the year.
The profits of the Fortune 500 richest companies come to $400 billion. That would keep the government running for another 40 days, to mid-July.
America has 400 billionaires with a combined net worth of $1.3 trillion. If Congress fleeced them of their assets, stocks, bonds, yachts, airplanes, mansions and jewelry, it would get us to at least late fall.
The fact of the matter is there are not enough rich people to come anywhere close to satisfying Congress’ voracious spending appetite.
It is the admirable, if unaffordable and unattainable, goal of McCarter and many of her fellow proponents of Big Government to have the federal government expand its size and cost for the benefit of the American people. Right now, though, the federal government has expanded beyond its constitutional limits, and far beyond the limits of affordability. If McCarter wants Social Security and Medicare protected for generations to come, she ought to praise those Democrats who are willing and able to work with Republicans to reform those programs. Without reforms, they are going to collapse before this year’s retirees reach their full life span. With reforms, they may be able to provide at least some assistance to those who have paid into them for decades.