Saturday, May 14, 2011

Time to Gore the Sacred Cows

In the financial world of Medicare and Social Security, things just got worse. There's plenty of denial to go around, and no one is willing, it seems, to step up and admit the obvious. There was a report released yesterday by the trustees, heightening the necessity for Congress to rejigger the massive entitlement programs.

The future, long deferred by lawmakers, has apparently arrived at the doorstep. The problems are us -- the baby-boomers. We're all retiring and the taxes collected to support the programs are in a prolonged pattern of weakness -- call it life support if you wish. The bad news couldn't come at a better time for serious reformers, and a worse time for the kick-the-can-down-the-road crowd.

The trustees of Medicare now project it will run out of money in 2024. That's been accelerated by five years earlier than last year's estimate. Social Security trust funds will be drained in 2036, one year earlier than the last estimate. Trust funds? More accurately IOUs to the Treasury, since there are no fungible assets left in the trust fund. The reality? When the trust fund balances finally reach zero, there's only one solution -- collect enough money in current payroll taxes to pay only partial benefits, the report said. Not a rosy future. Of course, not many of us are concerned today because we won't live that long. It's our children and grandchildren who will suffer.

I say "suffer" advisedly, since perhaps the alternative view is they will finally be freed from the obligation of funding entitlements in the welfare state.

Here's the projection in the report for next year: After going two years with no cost-of-living increase in Social Security payments, the trustees are projecting a 0.7 percent increase for next year. Big WHOOP. That will get nullified by higher Medicare Part B premiums.

Here's a comment from Captain Obvious: "There can no longer be any doubt or denial: Our nation's Medicare and Social Security programs are unsustainable and will run out of money sooner than expected," said Senate Republican Leader Mitch McConnell of Kentucky. These guys are the geniuses who have supervised the debacle. McConnell is an echo chamber for Americans, who said when recently polled that 47 percent were opposed to raising the debt ceiling. Can he be trusted to lead the Senate in executing on the will of  the people? I have much more confidence in Speaker John Boehner on the House side if his rhetoric can be matched with deeds. Said Boehner: “I’ve talked to the President all year, privately-- about the fact that we were not going to increase the debt limit without serious changes. I mean, this conversation has been going on for quite a while. I’ve offered to the President, I’ve said, ‘Mr. President, come on, you and I, let’s lock arms and we’ll jump out of the boat together.’ I’m serious about dealing with this, and I hope he’s just as serious. No gimmicks. No automatic claw backs. I’ve had it with all of that. We know what needs to be done. Let’s just do it.” Even Paul Ryan, the House Budget Committee chair is sounding realistic: "Both parties messed this up. This is not a Republican-created problem or a Democrat-related problem. It's both parties and we've got to face up to that if we're going to get this situation under control." Now you're talking like men rather than boys. Keep it up, please.

The backdrop to this latest disclosure yesterday is the negotiation, more aptly, the political theater being played out between Congress and the Obama administration. They are "negotiating" proposals to change Medicare and other benefit programs as the looming request by the administration for an increase in the debt ceiling grows more urgent. That ceiling will be bumped up against sometime Monday. We're at $14.3 trillion in debt right now, and Treasury Secretary Timothy Geithner is claiming the sky is falling on the government's ability to service the debt on outstanding bonds.

Poppycock. The Treasury takes in 10 times what it needs to service the interest payments. Holders of the low-interest rate bonds for the moment still believe they will be paid. That could change if Congress doesn't begin acting like it is serious in cutting spending. It's a matter of prioritizing the spending, meaning making deep cutting decisions the lawmakers are so reluctant to do.

There may be time to put off sweeping changes in how we fund Social Security going forward, but Medicare seems for the moment to be in the cross hairs for reformers.

Here's the deal: If Congress continues to wait and debate, the expiring clock forces America into higher taxes. The other choice is deep cuts to benefits, according to the report. Making critical decisions today on smaller baby steps to get the needed changes made today, gives a longer ramp to run on for future retirees in the next generation.

Who are these "trustees" you ask? Charles P. Blahous III and Robert D. Reischauer. No one you know, but they signed the report with this warning: "The financial shortfalls confronting both Social Security and Medicare are substantial and -- absent legislation to correct them -- quite certain. Elected officials will best serve the interests of the public if financial corrections are enacted at the earliest practicable time."

The only question remaining is this one: Are lawmakers inclined to act on these predictions, or blandly go about the people's business as usual as though there is no impending urgency? The weakened economy with more people out of work for a sustained period of time has added to the problem significantly. With fewer working bees in the hive, paying fewer payroll taxes to support the programs in the short term, the trustees warn the trajectory is quickly turning negative. Medicare is more critical because tax revenues continue to fall in the face of rising health care costs.

Here's their projected fix: Two choices, neither of which is attractive. To put Social Security on a sustainable path for the next 75 years, the trustees recommend an increase in the payroll tax of 2.15 percentage points, OR an immediate and permanent 14 percent cut in benefits. Even more stark are the projections needed to fix the Medicare hospital fund -- an increase in the payroll tax of nearly 1 percentage point, OR a 17 percent cut in benefits. These are not hard math problems. What is needed is the political will to act and act now.

We have a socialist welfare state in America today. The debate should end here and now about whether or not we do. Creeping socialism has nearly engulfed and strangled our national government and what used to be considered a free-market economy. Nearly 55 million retirees, disabled people and children who have lost parents receive Social Security benefits, which average $1,077 monthly. More than 46 million people are covered by Medicare. Just do the simple math. Who says we don't already have a "nanny state?" Both parties have contributed to his current state of affairs because of their willingness to compromise with each other over the years.

Compromise is what got us here. Now we need patriots who will stand on their correct principles of freedom and liberty to lead us out of the wilderness in which we have wandered aimlessly and recklessly in our generation.

The cost of medicine continues to escalate. Medicare has allowed physicians and hospitals to experiment endlessly without restriction on high-tech solutions. People are living longer, and receiving once-complicated procedures such as heart bypass surgery and hip replacements later in life. Those treatments are now routine. Three cheers for life-elongating medicine. But how do we pay for all that charity care? Higher taxes.

The political class has usurped their power and authority from the citizenry. In exchange for all the socialist goodies they have doled out, the electorate perpetuates their longevity in office and rewards them for their largess. Most conservative realists, however, argue the Social Security Trust Fund is nothing more than political myth.

"It is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report," the trustees added. So much for the claims that Obamacare reduces medical costs. Can you say accounting hocus pocus?

Six trustees oversee Social Security and Medicare, in case you wondered. Besides Geithner, Blahous and Reischauer, the others are Labor Secretary Hilda Solis, Health and Human Services Secretary Kathleen Sebelius and Social Security Commissioner Michael Astrue.

Question: Are the trustees trustworthy?

Bigger Question: Are the elected representatives of the people awake and on task in overseeing the trustees?


  1. "Compromise is what got us here. Now we need patriots who will stand on their correct principles of freedom and liberty to lead us out of the wilderness in which we have wandered aimlessly and recklessly in our generation."

    What do you suggest we / they do? Just drop it?

  2. No, it's not an "either/or" proposition on compromise. It seems to me the best course we can pursue now is to hope both parties who created the debt/entitlement mindset in the first place can now come together and compromise to drastically reduce spending and taxes. If we can compromise on these debt and spending reduction issues, we can solve these problems together. If they can do that together now, then compromise can be as productive as the compromise that produced our current situation has been destructive.

    There are two well-developed and polarized political positions -- the Democrats will not surrender on entitlements for the poor and the needy, and Republicans will not surrender on a strong national defense. Both united behind bailing out the financial sector. Now inflation has kicked in behind QE1 and QE2, which amounts to nothing more than printing worthless paper currency. Those two polarized political positions have morphed into profligate spending and have spiraled upward into the stratosphere. That's what I mean by the compromises that got us here. But I would suggest that what goes up must inevitably come down. The law of gravity is at work here, and cannot be ignored any longer.

    When the Obama administration asks for a $2 Trillion increase in the debt ceiling, then the other side must insist on $2 Trillion in corresponding cuts, and most agree the profligate spending is clearly on the medical cost side associated with Medicare and Medicaid. Social Security is an easier fix, but it must be done now with both sides fully cooperating and on task.

    If Congress acts now to correct the cash flows in the programs, the fixes can be accommodated without impacting current recipients and giving enough time for future recipients to begin planning now for reduction in benefits and higher taxes, as suggested in the report I cited above. However, refusing to act for fear of the political consequences narrows the available choices dramatically, and is not an option any longer.

    The socialist entitlement mentality is so deeply embedded in the American psyche, I fear, that elected representatives who are reluctant to commit political suicide by daring to step up to confront the problems in the entitlements will do little or nothing to make the needed changes. Eight Democrat Senators in this cycle are retiring, rather than have to confront the tough choices they face. So when I appeal for patriots, what I am saying is we need men and women who can set aside their lust for power by focusing exclusively on their re-election campaigns and do what's right for the country to lift this growing tax burden of funding entitlements we cannot afford as a country.

    People tell me all the time about foreign countries like Sweden and Belgium that seem to succeed with their socialist programs with total individual taxes standing at over 50%. Is that the America we want? These are small and relatively homogeneous countries compared to a much larger population and expansive diversity in the melting pot that is America. The debt and tax burden in America is now unsustainable, because it curtails freedom and liberty, and must be addressed head on, the sooner the better. Waiting leaves us no other option but higher taxes. Putting small changes in place now will spare us dramatic catastrophic changes later. Eventually, if not now, our debt load threatens our national security because it weakens us as a nation.

    I believe my children and grandchildren are quickly coming to the realization that what used to be considered the "American dream" will never be achieved by a government doling out socialist goodies through entitlements. Self-determination is an idea that must be re-enthroned if America is to be preserved.