Yes, We Could Be Having A Serious Deficit Reduction Discussion?

Tea Party FlagAt some point in the ongoing discussion about federal debts and budget deficits everyone needs to get serious.  Serious, that is, about doing that which will reduce our federal deficit spending.  Really serious, not as in “let’s wave a Debt Crisis Flag every three months to advance an agenda including the privatization of Social Security and the voucherization of the Medicare program.”

Let’s start with the obviousSocial Security doesn’t add a dime to the national debt.  If the words of a progressive blogger won’t suffice, how about listening to former President Ronald Reagan?  (video here)  So, discussing “reforms” to the self funded Social Security program as a means to reduce the national debt is extraneous to any serious deficit reduction discussion.

One way to approach the privatization of Social Security is to change the frame of reference, such as altering the connotation of “entitlement” from some earned benefit to which we are entitled because we paid for it, to one which has a tinge of “welfare” about it.  Social Security is not a welfare program — it is an earned benefit.  People who have paid into it all their working lives have every right to expect to be getting something back.  Social Security is not a retirement program.  It is a program which seeks to prevent abject poverty for elders.   Nothing in the Social Security program prevents anyone from maintaining a self-contributory retirement account of any shape or form.   Indeed, the benefits from Social Security are low enough that retirement to the Gated Golf Paradise Of Your Choice can only happen if you have a self-contributory retirement savings program. Anyone suggesting that “entitlements” such as Social Security “have to be reformed” to ease the burden on the federal debt (1) doesn’t have a clue what they are talking about, and (2) is regurgitating anti-safety net talking points from radicals who want to privatize all retirement income programs to the benefit of Wall Street investment firms.

Medicare does have some issues.  The first, and most readily apparent, is that the Medicare Part D (prescription drug) segment is, and always has been, underfunded.  However, the really big monster under the Medicare bed is the increasing cost of health care in America.  When private health care corporations started buying up religious organization/private, state, and locally supported hospitals the profit motive surged in the sector.  Health care must now generate a profit.  Savings, which were once achieved for the purpose of reducing costs for local tax payers or donors to religiously based institutions, now accrue to the corporate bottom line — not to taxpayers, donors, or patients.

The second factor is technology.  We do have the best medical treatment providers in the world.  However, best often translates into “most expensive.” We have all manner of devices and gadgets and equipment and gear to save or sustain lives.  Our hospitals take it as their mission to save or sustain life, which is all well and good until the emotional meets the economical.  There are “death panels” in this country, but they aren’t governmental — they are familial, with families making ‘end of life’ decisions which horrifically in some instances are based on what the family can afford.   Frankly speaking, we don’t do a very good job of educating our citizens about advance directives.  Some conservatives set up a howl when they noticed the Affordable Care Act provided for paying physicians or other medical professionals who provided ‘end of life’ counseling for their patients — however, a little counseling might go a long way toward reducing the anxiety of hospital personnel and the trepidations of family members.  It could also provide some savings in the long run.

Returning to the Big Problem — the Medicare Part D component; we knew in 2003 that the Part D segment would  cost approximately $534 billion.  [Foster pdf] Simply put, “the drug benefit had no dedicated financing, no offsets and no revenue-raisers; 100% of the cost simply added to the federal budget deficit,..” [Forbes]  The part about “dedicated financing” is important.  While the Social Security trust funds have dedicated financing (payroll taxes) there were no provisions to increase the revenues available to finance the Part D enhancement.   There is something unappealingly ironic about the current GOP insistence on “entitlement reform” because “Medicare is broken,” when it was the GOP majority in 2003 that Broke the Program.

Ways to ‘reform’ the Medicare program have been suggested which do not require “voucherizing” the entire thing and sending seniors back to pounding pavement in order to find affordable health insurance plans.  We could consider means testing for the prescription drug benefit.  We might take under advisement lifting the earnings cap for payroll taxes from the current $110,000 level and dedicating a portion of the revenues toward the Part D program.  We could allow the Department of Health and Human Services to negotiate for prescription drug prices the way the Veterans Administration bargains for prescription drugs for VA hospitals and clinics.

If we are REALLY REALLY SERIOUS about ‘reforming’ Medicare then it would be helpful to get past the silly voucherization proposals, referred to as “structural reform” in Speaker Boehner’s response to the President, [Boehner pdf]  and get to the core of what makes health care expensive — we could talk about health care cost containment, dedicated financing for Medicare, and lifting the earnings cap.   We might also want to take a deep breath and see if the Affordable Care Act’s provisions, such as eliminating tax payer subsidies for profitable private Medicare Advantage insurance policies, could achieve some savings over the next decade.

However, it’s getting relatively obvious that the Republicans aren’t terribly serious about deficit (debt) reduction when their offers are strictly ideological (privatize and voucherize) and the proposals don’t address the monster of their own creation — the lack of financing for Medicare Part D.

Buzz Words and Generalities.   Speaker Boehner is offering (pdf) “pro-growth tax reform that closes loopholes and deductions while lowering rates.”   This phrasing is coming perilously close to the older verbiage: Waste, Fraud, and Abuse.  As if we could make up any gaps in program funding by simply cutting out the WFA.  Most anti-tax advocates cite the WFA as some massive potential figure which if reduced could cure all our fiscal woes.  When pressed to provide total figures associated with the largely mythical WFA these advocates provide outlier examples of welfare fraud, some particularly egregious Pentagon payments to contractors, and perhaps a bit of information from Internet e-mail chain letters.  The WFA numbers have yet to yield up the level of financing needed to close budget gaps in the Pentagon or any other government activity.

The arithmetic from “loopholes and deductions” doesn’t add up either.  The same sort of fantastical thinking is required to equate the WFA savings and the L&D revenues.  These mythological creatures are based on the same gossamer upon which anti-tax advocates conjure up the notion that an inordinate amount of the U.S. budget is allocated to foreign aid.  The average American has come to believe that foreign aid takes up 10% of the federal budget, when if fact it consumes only 1%. [NYM]

The Republicans also appear to be consuming their own rhetoric on savings associated with reductions in federal employee compensation.

“Cutting pensions and benefits for government workers is popular, but once again most Americans overestimate how much that costs the government. On average, Americans think the federal government spent 10 percent of its 2010 budget on pensions and retiree benefits; the OMB figures indicate the real number is about 3.5 percent.” [CNN]

The moral of this story is that if the amounts of spending on pensions and benefits, or the amounts that can be retrieved by closing loopholes and eliminating deductions, are grossly inflated, then the resulting policy and budget decisions will be widely off the mark.

Unfortunately, the same type of ideologically based proposals which are the core of Speaker Boehner’s “structural reforms” i.e. voucherization and privatization of Medicare appear to inform his suggestions about federal employee compensation, and another favorite GOP target, SNAP (food stamps.)

The program is already under assault from all sides, considering the appropriations being entertained in the agriculture bill.

The Senate’s version of the farm bill would reduce overall funding by $23 billion, with a reduction in food stamps of $4.5 billion over five years. The House Agriculture Committee is proposing to cut funding by $35 billion — with nearly half the overall cut coming from reductions in food stamps by $16 billion over five years. [Atlantic]

But there’s a problem here.  Food stamps have a beneficial effect on the national economy.

“Those who believe in cutting SNAP funding as a cost-saving measure should know that food stamps boost the economy — not put a strain on it. Supporters of federal food benefits programs including President George W. Bush understood this, and proved the economic value of SNAP by sanctioning a USDA study that found that $1 in SNAP benefits generates $1.84 in gross domestic product (GDP). Mark Zandi, of Moody’s Economy.com, confirmed the economic boost in an independent study that found that every SNAP dollar spent generates $1.73 in real GDP increase. “Expanding food stamps,” the study read, “is the most effective way to prime the economy’s pump.” [Atlantic]

If the object of the game is to increase federal revenues by generating a higher GDP along the formula proposing that a growing economy produces jobs, and more jobs yield more taxable income, and more taxable income means more revenue — then the GOP has the SNAP portion of the argument exactly backwards.  They are proposing to cut a program which actually generates more economic growth.   If one seriously believes that economic growth means more revenue and hence less indebtedness, then one can’t seriously advocate cutting programs which elevate levels of economic growth.

All Pain and No Gain.  The two sides don’t seem to be speaking to the same fiscal slope, cliff, gully, whatever.  From the Republican perspective the damage to the economy might be done by The Specter of Rising Taxes.  Those legendary Job Creators — who are now seeing record corporate profits while wages continue to stagnate — might not invest, and hence there will be no economic growth.  This is fundamental Supply Side Hoax thinking.  That it has been, and still is, a hoax is demonstrated neatly by this graph from the Federal Reserve Bank of St. Louis:

Corporate Profits Low Wages

The blue line represents wages, the red line corporate profits.  If corporate well being were the driver of overall economic growth and  well being then why has the blue line been trending downward since 1970?  The answer is simplicity itself: Supply Side Economics is a Hoax of the First Water.

A deficit reduction plan predicated on ideology, urban legends, misunderstandings, and economic illiteracy isn’t SERIOUS.   That conclusion further advances the argument that the Republicans aren’t really serious about debt or deficit reduction, but merely see the issue as a flag to be waved in the van of their attack on the social safety net, a banner of privatization signaling their allegiance to Tea Party politics.

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Filed under Economy, Health Care, health insurance, income tax, Medicaid, Medicare, national debt, Social Security

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