As most people in the United States know, there is an ongoing debate at the state and national level about the future of government spending. States like Minnesota are in the middle of drawn-out shutdowns while politicians argue about future budgets in an effort to close funding gaps. This debate is happening at the federal level as well. Republicans and democrats have a deadline of early next month to produce a national budget or else the country will go into default. There seem to be two major planks in this argument about how to fund the government: cut entitlements or increase certain taxes. What this boils down to in some perspectives is eliminate subsidies and loopholes that are exploited by the well to do (increase taxes) or reduce benefits in such programs as Medicare or Social Security (cut entitlements. What is interesting is that attempts have been made by both major political parties to reform entitlement programs in such a way that benefits received would have been improved while cost would have been reduced.
The most recent of these attempts was the healthcare reform effort of 2010. Obamacare, as some people call it, is a failure, and, though it will increase access to health care for some people, it will only increase bureaucracy and raise costs to consumers and to the government. The other major attempt at entitlement reform was targeted at Social Security in 2004. This effort to restructure Social Security was championed by the Bush administration but was fought by congressional republicans and democrats. Nonetheless, Bush’s attempt to reform Social Security was a well-formed idea that would have ultimately been accepted by the people of this country (just as most of the desires of health care reform would be if they weren’t in such a horrible package).
Social Security reform (specifically the inclusion of privately managed accounts) has been conducted in such countries as Chilé, Sweden and Mongolia. In every country that has introduced these reforms, the public cost of social insurance programs has declined while the average amount saved by recipients has increased. An example we could stand to emulate is that of Chilé.
The reason I am mentioning Social Security relates back to efforts to cut these benefits. After many people spent their lives paying into this system, planning to rely on it to meet their needs in old age, we now have people eagerly demanding that their benefits be cut, and this during economic hard times. Though the republicans are vehemently demanding cuts in these benefits, they have failed to resurrect the issue of Social Security Reform. If they truly cared for the well being of US citizens, they would demand a restructuring of this system for our personal and collective benefit. Instead, they call for a maintenance of tax rates with a decrease in benefits. This is not a tenable position. Furthermore, they could come forward with a health care system alternative (something they should have done years ago now). But entitlement reform is not on their agenda. Rather, they simply call for entitlement cuts. What is chilling about such a policy is the position it will put so many people in. What will be the recourse for all those people who no longer have the services they paid for? If they do not receive that Social Security check or Medicaid insurance, what will they do? They will have to borrow, and then they will be indebted to the banks, and as I’ve pointed out before, we have politicians who owe a lot to the banks. But I digress.
It is true that Federal and State budgets are out of wack. In the states, a dependence on property taxes and sales taxes created a handicap that cannot be easily remedied at this point. At the federal level, excessive debt has been created in an interesting way: federal debt was purchased (T-bonds) with social security revenue. So, though social security still pays for itself, the federal government now owes interest to social security. That is our problem. All that money collected for social security could have been used to buy foreign debt, thus sending the bill somewhere else, but that was not done. So now the people must bear the burden of poor past planning. We can stop making this problem worse. All future investment of social security funds can be directed toward stable, foreign debt. Or, each person can be given options for investing their SS payments themselves, as in Chile and many other countries. Plans for a transition can be found at the Heritage Foundation, the CATO Institute, here, the GAO, and many other places. Sadly, the democrats seem to oppose Social Security reform, as do many republicans, perhaps simply because they do not think they can make a political case for it. But the evidence is there, the cost savings and increases in personal saving and spending are real. Cutting entitlements is not the answer, rebuilding the system is.
You could expand that idea to the entire federal system, but we’ll have to tackle that later.