Tuesday, April 26, 2011
Last weekend, David Ignatius in his Washington Post column made a vital contribution to the debt and deficit debate: "Take the deficit pain now. It's a truth of economics and life that if you have bad news coming, take the hit early and get it behind you. You can't start building until the debris is out of the way."
Ignatius offers various examples from history (e.g., Fed Chairman Paul Volker's 1979 interest rate hikes that caused the recessions of the early '80s, but broke the inflation psychology and (I would add, with Ronald Reagan's policies) built the foundation for 25 years of prosperity.
Ignatius concludes with: "What's crazy in this budget season is the hope that you can buy some relief with just a little harsh medicine. To quote Shakespeare's 'Macbeth': 'If it were done ... then 'twere well it were done quickly.'"
Measured by the "Ignatius standard", I would argue that only the Republican Study Committee, chaired by Congressman Jim Jordan, has offered a budget that gets the job done in time. The president's latest proposal just keeps adding new debt and deficit (and taxes) forever, and even Budget Committee Chairman Paul Ryan's budget (now the official budget of the House of Representatives) takes a generation of further debt and deficit before eventually getting to balance.
The RSC budget gets us to balance by 2020. And they do it by cutting spending rationally in both the regular operating budget of the government (keeping discretionary spending at 2008 levels of $933 billion beginning in 2013 (including trimming defense spending at the levels recommended by Secretary of Defense Gates), reducing Medicare, Medicaid, Social Security and other entitlement spending -- and by not raising taxes.
First, consider the futility of tax increases for the rich making a real dent in deficits. As the RSC points out, the General Accountability Office has determined that the "entitlement shortfall -- the difference between planned spending and the revenues coming in -- is equal to $88.6 trillion." The Congressional Budget Office estimates that by just 2025, current level spending on Social Security, federal health care programs and net interest will consume "every single dollar of revenue the federal government collects."
And now consider the paltry amount of money we could get from taxing "the rich," as analyzed by economist Walter Williams: 1) "if Congress imposed a 100 percent tax, taking all earnings above $250,000 per year, it would yield...$1.4 trillion"; 2) if the government took 100 percent of the yearly profits of all the Fortune 500 companies, it would be only $400 billion; 3) if the federal government confiscated all the property of the country's 400 billionaires (down to their last set of cufflinks and children's baseball mitts) it would yield only $1.3 trillion dollars. And, of course, that would be a one-time take because after confiscating all their assets they would be broke. All together all the "rich" people's income and assets could not balance the budget for even one year -- let alone for generations.
No, the key, the unavoidable hard choice, is to reduce over all costs of the entitlements. And it is on this point that the RSC budget makes the obvious, essential, inevitable -- but still beyond the political pale -- proposal to slowly and humanely push back the Medicare eligibility age to 67 and the normal Social Security retirement age to 70. (Along with block-granting Medicaid and switching Medicare to a premium support system, as the Ryan plan proposes. It also adds a modest means test. The proposal also makes reasonable limits on agricultural subsidies and other smaller entitlement programs.)
In Medicare, they don't change anything for people 60 and over. But for people under 60 (that is, people born in 1952 or later), their eligibility age will move back two months for each year that passes starting after enactment of this provision. So if you are 59 this year and were going to become eligible for Medicare on your 65th birthday (say, Jan. 1) in 2017, under the plan, you would be eligible 12 months later.
Thus, you would have six years to mentally and economically adjust to getting your benefits starting just 12 months later. And of course, Americans now live to almost 80 years old -- and the overwhelming majority with vigor and health well into the 70s. Social Security disability coverage continues to be available for the others.
But due to the scores of millions of people affected and the power of compound saving over time from even the smallest changes -- the savings from this, in reality barely noticeable, change in our lives will be substantial. According to CBO, this one Social Security change, by itself, would close more than half the total Social Security long-term funding gap of $16.1 trillion. (For further details read the whole report of the Republican Study Committee "Honest Solutions; Fiscal Year 2012 Budget. Issued April 2011").
Let's follow the Ignatius Standard and get the job done now -- so that the world bond market can trust the U.S. Treasury again, and American business can be confident about employee costs and start hiring and investing again.
The Republican Study Commission budget gets that job done. If the Democrats or Republicans have other ways to get the same result, let's see them. But no half measures should be admissible in this great debate for our future.
Tony Blankley is executive vice president of Edelman public relations in Washington. E-mail him at TonyBlankley@gmail.com.
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