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Three Ugly Little Truths About The Federal Budget

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Here's the background we should all keep in mind about the budget President Bush sent to Congress this week. The big headline is that this is the first $3 trillion federal budget, but more importantly, the United States is $9 trillion dollars in debt. The country runs deficits routinely and faces another $400 billion gap this coming year. We face huge expenses down the road as 78 million baby boomers start collecting Social Security and needing help from Medicare. Frankly speaking, this country really needs to start thinking seriously about cutting spending, raising taxes, or doing some of both. The United States is a wealthy nation. We're not Haiti. There's no fundamental reason our government can't live within its means. But so far, it doesn't even deserve an "E" for effort.

This year, President Bush has proposed cuts in Medicare and Medicaid as a modest (very modest) tip-of-the-hat to the need to get spending in line with revenues. He's presenting the proposed cuts as a way to offset added spending on the economic stimulus package and as a first step to tackling the problem of rising health care costs. President Bush probably won't go down in history as the country's best money manager, and his belated (and many would say misguided) attempt to be modestly more realistic probably won't go down well either. But the President's budget does shine a light on three ugly little truths we should all start grappling with.

* No. 1. Balancing the budget and getting the country's financial house in order requires making choices. Over the last seven years, the country has cut taxes to historically low levels, added spending for the Iraq War and the larger fight against terror, added a broad new drug benefit to Medicare, and now we need to inject money into the economy because we're on the tip of a recession. You don't have to be an accountant to see that these numbers don't add up. The choices implicit in President Bush's budget - between "entitlement" spending like Medicare and shorter-term needs like the stimulus package - are just a heads up on the decisions we'll be facing later on, because our problems will only get worse.
* No. 2. Cutting expenses from the federal budget sometimes just shifts costs to state and local government. Cutting money for Medicaid could help offset the other federal spending, but Medicaid is a program that's funded jointly by the feds and at the state level. If federal funding is cut, many in the states will say they still have poor people there who need medical care and seniors who can't pay for nursing home care themselves. There will be enormous pressure at the state level to pick up the pieces. And that will mean that local and states taxes may rise and/or states will have less money to spend on the other things they pay for -- like public schools, community colleges, transportation and the criminal justice system.
* No. 3. The cost of health care is a monumental problem for everyone - federal government, state government, employers, and individuals. For federal government, this means rising costs for Medicare, Medicaid, veterans' care, and benefits for federal workers. Medicare is the $330 billion gorilla in the room. According to the Medicare trustees report to Congress in 2007, its "financial difficulties come sooner - and are much more severe - than those confronting Social Security." In the last couple of decades, experts have pinned their cost-cutting hopes on HMOs, preferred provider plans, prevention, competition and other ideas, and costs have continued to spiral upward. If we don't find and agree on ways to control rising health care costs, solving the country's budget problems will be nearly impossible.

As a country, we have ample resources to balance the government's budget and develop compassionate but sensible ways to address the financial problems facing Social Security and Medicare. But unless we start facing facts about the nature of the challenge - and unless we start talking about them candidly and often -- we'll just keep dumping our bills onto the next generation.

Jean Johnson and Scott Bittle are authors of Where Does the Money Go? Your Guided Tour to the Federal Budget Crisis (HarperCollins) and editors of Public Agenda Online (www.publicagenda.org)