Digging Deeper Into Pockets, Into Debt

Does the government spend too much? Probably.

Are taxes too low? Probably.

Is there an easy or quick fix? Absolutely not.

Tax receipts cover 60 percent of government spending. We borrow the rest, so an inability to borrow means there won’t be enough money to go around. Few households and businesses can cut their expenses 40 percent overnight. Neither can the federal government.

When households and businesses face cuts like that, they go bankrupt. They lose most of what they own and creditors don’t get paid. Their credit ratings drop. Their living standards decline. If they can borrow money, interest rates rise. Anyone with a credit problem knows recovery takes years. It’s not a pretty picture.

Ben Bernanke, chairman of the Fed, who incidentally was appointed by George W. Bush, said it would be a “calamity.” It will affect everyone. A talking head should ask Congress if it will take a 40 percent pay cut and pay 40 percent of their health care.

Here’s the big picture showing federal government income and expenses last year and ten years ago:

Billions of dollars 2000 2010

Federal Receipts $ 2,025 $ 2,163

Federal Expenditures $1,789 $ 3,456

Surplus (DEFICIT) $ 216 ($ 1,293)

As percent of GDP

Federal Receipts 21 percent 15 percent

Federal Expenditures 18 percent 24 percent

Surplus (DEFICIT) 3 percent (9 percent)

Stop there, and the story is an easy one. Even though tax cuts reduced revenues, and the recession, two wars, and an expansion of Medicare increased spending, no one is discussing that. Instead, the screaming is about “no new taxes” and out of control spending.

Every mechanic knows what to do. Look under the hood and see what’s making the noise. And there it is: we’re getting older and old is expensive.

In the past ten years, Social security has almost doubled from $400 to $700 billion, and federal health care costs have more than doubled from $390 to over $920 billion and continues to rise much faster than inflation.

Yet, it’s going to get worse. Here come the baby boomers and they are a tsunami. Today, 40 million people in the U.S. are over age 65, of which, 19 million are over 75. Behind them stand 79 million people between 45 and 65, so about 79 million are going to replace 19 million in the retirement pool over the next 20 years.

Medicare covers the health care of those over 65 which cost $500 billion last year. Dedicated Medicare tax receipts covered $65 billion, about 13 percent, of those costs. Another $400 billion in federal health care costs were spent on the military, veterans, federal employees, and the poor with no tax source other than the taxpayer.

In 2010, total personal income tax receipts were about $900 billion, enough to cover the government’s health care tab, but that leaves nothing for other government function. No military, no highways, no courts, no environment, no national parks. No Congress! Next year, taxes may or may not increase depending upon the economy, but retirement and health care costs will increase, certainly more than tax revenues. That is a bad formula.

Imagine this Jeopardy question: If the retirement population doubles or triples over the next thirty years, how do we pay for social security and retiree health care? What is the winning answer?
Congressman Paul Ryan (R-WI), chairman of the House Budget Committee, proposed a plan. First, eliminate Medicare in ten years, give seniors an $8,000 voucher, and let them buy their own policy. (I’m 62 and can’t buy a policy for that amount now. Maybe costs will go down over the next three years.) Second, give the states block grants and let them figure out how to deal with rising health costs. (In other words, let states raise taxes or decline care for the poor.)

Public opinion is divided on whether to raise taxes, but otherwise, public opinion is very clear: reduce spending, don’t reduce social security and save Medicare. Figure out how to do that, and Washington is calling you.

The debate should be addressing health care costs and an aging population. Instead, Washington is playing political roulette with the public’s future.

Washington needs more kindergarten teachers and coaches, those special giants in our lives who taught us to share, to be fair, to give a little and get a little, to be nice, and that we either win or lose as a team, not as individuals. How much we forget as we get older!

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