Three Ugly Little Truths About The Federal Budget

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)

Comments

[realitytrumpsbull]

Who's going to swing the axe? Nobody.

[olephart]

"President Bush probably won't go down in history as the country's best money manager,"

Also, the Titanic had a bit of a problem on its maiden voyage.


"the President's budget does (NOT) shine a light on three ugly little truths"

1. The $400,000,000,000 deficit does NOT include the $200,000,000,000 of off budget expenses for the Wars.

2. The $400,000,000,000 deficit does NOT include the $220,000,000,000 Social Security SURPLUS that is consumed and spent.

3. When given the opportunity to display even the smallest amount of fiscal responsibility by eliminating the tax breaks for Big Oil and their record profits and the tax breaks for the Hedge Funds that have helped cause the mortgage melt down Bush refused. His budget includes making his ruinous tax cuts permanent in the face of overwhelming evidence that they are not in anyway productive or have benefited any aspect of the economy except providing spending money for those who need it the least.


The REAL DEFICIT will be greater than $800,000,000,000 this year. IF the economy continues as it is now that figure will increase. It is entirely possible that George W. Bush could produce a $1,000,000,000,000 deficit in his final year. The borrowing requirements of this Nation could exceed the World's tolerance for this recklessness. We are already seeing Sovereign Wealth Funds buy up our financial assets as their reckless lending has caught up with them. How much of this Nation will George W. Bush PAWN before he leaves?

[jfb22]

Three equally obvious, if politically difficult, responses:

1. allow Bush tax cuts to expire in their entirety. Put estate tax back to 1980 rates.

2. single payer health care system, cutting admin costs from one sixth (private insurers) to 2%(Medicare), gaining enough to pay for all the uninsured. Provide 12-24 months of unemployment insurance for the millions who will be laid off when private insurers close. Five year transition, about 60 million people per year, in groups of states.

3. Carbon tax per Rep. Dingle, starting at $20/ton CO2 ($120B/yr) and ramping at $10/ton per year for a decade, ending at $120/ton. Use part of this to index the AMT for inflation from date of passage. Use the rest to pay down debt and for #2 above.

[bmora]

I think there is one other "ugly truth": Privatization of government services has failed to save the tax payer’s money. The private sector is nowhere near as efficient, most recent events (Enron, WorldCom, Societe Generale, etcetera, infinite) empirically support this idea, as the public sector in most cases. In fact, I would stipulate that in most cases, it is impossible for the private sector to compete for services traditionally provided by the public sector. Why you ask: Profit. Companies have to make a profit. This is not the case in the public sector. Fraud is Big Business and no one has a better understanding of how to use it to its advantage like the private sector.
Now, you may say that there are other factors that may impede a public sector enterprise, but all can be corrected with proper management learned from the private sector and common sense.
MSM will not report this because it bad for business as some are disposed to say.

[jimpryor99]

Here's the truly funny part about this blog.

He didn't cut Medicare and Medicade. He increased them by 5% over last year's levels. But they were asking for over 7%, so somehow a 5% percent INCREASE is called a cut. Brilliant!

As for LeftRight, how do the uber-rich pay a low tax rate? They pay the highest tax rate.

[Iownpeterbilt]

It is not only the tax rates, congress has continued to give tax breaks to corporations that offshore and outsource.
We have no economic base left in the U.S., we are at this point even importing some of our food.
When history is written 40 or 50 years in the future the United States will be listed as one of the former empires of the world, Joining Rome, Spain, the British Empire and others!!!!!!

[LeftRight]

Thus the reason that we need to not only get rid of the bush tax cuts, we also need to do what we did in the 80s, gut the tax code and build it back up from the ground, allowing us to close the loopholes that have been found over the last 30 years by the rich and the corporations. Right now we are paying among the lowest tax rates in the world, especially if you are in the rareified levels of uber-rich.