Getting a Grip on Realities of the Federal Budget
The big story about the federal budget this week was the Republican Party’s struggle to deal with raising the debt ceiling. Last year’s big budget story was President Barack Obama and the Democrats coming to grips with the so-called sequester, a policy gimmick that modestly slowed the growth of federal spending.
Neither of these storylines came anywhere close to dealing with reality. The two teams of Washington insiders get hung up on these side issues because they’re better at symbolism than substance.
For substance, start with the fact that the federal government is not $17 trillion in debt. That figure excludes all the promises made to future Social Security beneficiaries, Medicare recipients, military veterans and others. The real debt is much larger, somewhere between $60 trillion and $100 trillion. So, when Republicans focus on the narrowly defined debt ceiling, they’re ignoring the much larger and more threatening debt that has already been authorized.
And, despite all the Democratic claims about budget cutting, federal spending keeps going up: every year. Obama’s own budget projects spending will be about $90 billion higher this year compared to last. Growth is projected at an even faster clip in the years to come. Which brings us to the reality neither political party in Washington wants to discuss. Two-thirds of all federal spending comes from just three programs — Social Security, Medicare/Medicaid and national defense. Add interest on the federal debt, and you’ve accounted for 71 percent of the federal budget.
What this means in simple terms is that anyone wishing to cut government spending must address the issues of Social Security, Medicare/Medicaid and national defense. This problem is magnified by the fact that these areas account for about 85 percent of the spending growth anticipated in coming years. That number would be even higher if it weren’t for the recent winding down of foreign wars.
Addressing these issues is not easy or fun. But it is necessary. As I outlined in my book, “The People’s Money,” the American people are far more willing than their politicians to make the needed changes.
On Social Security, politicians should get out of the middle and let workers select their own retirement ages. Those who want to retire earlier could pay more in Social Security taxes. Those who want to retire later could pay less. This can easily be structured to make the system financially solvent for future generations of retirees.
On Medicare/Medicaid, the answer cannot be found in some budget gimmick. The only solution is to lower the cost of medical care. This will require a fundamental change in health care policy so that individuals can make the decisions about their own medical care. The current approach of letting the government and insurance companies decide will never reduce costs.
When it comes to national security, the key question is to define our military mission. The current strategy is for the U.S. to play the world’s policeman. A less expensive approach would be to focus our military efforts on defending the vital interests of the United States.
There is plenty of room for healthy debate on all these topics. But the debate is needed. Any budget discussion that fails to address these three core issues is not a serious discussion.