The further to the left or the right you move, the more your lens on life distorts.

Thursday, August 04, 2011

A Very Small Slice

You’d think that it would be hard to make substantive budget cuts and to modify entitlements so that they don’t bankrupt the country, but in reality, it’s not rocket science. What is hard is for Washington to find the political courage to make the structural modifications that will allow our children and grandchildren to avoid onerous tax increases as we spend irresponsibly and at the same time watch Medicare and Social Security go into default over the next few decades.

What’s also very hard is to combat the predictable demagoguing on any structural change to spending or large entitlements. True political courage and very blunt talk is required. Both are in very short supply in Washington.

As the new “select Senate (super)committee” is impaneled, here are my suggestions for entitlement reform (even though they won’t even broach the subject)and for spending cuts:

Social Security

Raise the retirement age to 72 over the next ten years. Begin right now by raising the age to 68 and continue with increases every two years. When you hear demagogues suggest that people would have to “postpone their retirement dreams” remind them that social security was never intended as a pension plan.

Set far more stringent conditions on “early retirement.” Except for cases in which the person has a severe illness or disability, or has extreme financial problems, early retirees must rely on other sources of income, not social security. You’ve heard people say that 62 is the new 45. No reason to live off the taxpayers if you’re only 45, right?

Eliminate the COLA for all but those who have gross retirement income (all sources including investments) that are less than 1/3 their FICA benefit. For those who argue that you’ll be starving granny, remind them that if granny has other sources of income, those sources should throw off more as the COL rises.

Means test social security benefits. Anyone with gross retirement income (all sources including investments) that are 1.5 times the maximum family FICA benefit (in today’s dollars, that's other income of about $60,000) cannot withdraw more than they paid into the system, plus 5 percent per annum interest for all years the individual paid in. For those who demand the money regardless because “I contributed,” remind them that they get all their money back with interest, but not one cent more. Also remind them that they have other sources of income and therefore, should not be eligible for a government welfare program.

Although I’m not the OMB, making these cuts would save a minimum of $150 billion each year or in Washington speak: $1.5 trillion in 10 years. Helpful to be sure.


Increase medicare premiums (max of, say, 1.5 percent a year) as system costs increase. For demagogues who suggest that grandpa will go without medical care, ask why every other living expense (e.g., car insurance, electric bill) increases over time and whether grandpa goes without a car or electric lights because costs go up. Medical care is a life long expense that you have to pay, except in cases of extreme financial hardship.

Means test all medicare recipients and increase premiums for those with the ability to pay. It is patently ridiculous to pay $600 a month for medical coverage when you’re 64 and then have the taxpayers subsidize even better coverage for $320 per month. If you could afford $600 a month at 64, you can afford it at 65.

Eliminate dollar one coverage for all non-hospital medical visits and procedures. That is, charge a 3 – 5 percent co-pay unless the person can demonstrate extreme financial distress. This would do much to have seniors self-police their medical care and eliminate unnecessary tests and procedures. For example, the doc recommends an $800 MRI for a sore shoulder? If it costs a senior $40, it just might be something that he or she will forgo. In today’s environment, the natural reaction is “why not? It’s free anyway.”

Making the Medicare cuts noted above would result in at least $100 billion each year or in Washington speak: $1 trillion over a 10 year period. By the way, applying analogous cuts to Medicare could easily save more than $30 billion each year.

I know … anyone who could even suggest such changes is “heartless.” After all, there’s no threat of insolvency in these programs. Right? And even if they do become insolvent, we’ll just tax our kids and grandkids mercilessly to make it all right. That seems balanced, doesn’t it?

And for those demagogues who will scream that we’re “balancing the budget on the backs of the elderly or the poor,” consider this: Programs for the elderly and "disadvantaged" account more than half (21% Social Security and about 24% for Medicare alone) of all government expenditures. Since seniors and the disadvantaged are eating more than half of the budget pie, it would seem only reasonable that in times of extreme economic stress, they’d give back a very small slice to their children and grandchildren.

Discretionary Domestic Spending Cuts

Defense. Republican hawks seem to think that the DoD budget is sacrosanct. That’s unmitigated nonsense. There is so much mismanagement, redundancy, and outright waste that a cut of 10 percent would do little to affect our combat readiness. There are some very bright and competent officers in the US military. If tasked with prioritizing needs with 90 percent of current dollars, I’m confident they'd figure out a way to do it, if politicians simply stay out the way. Savings: $70 billion per year.

Pensions. Effective tomorrow, every new federal employee is provided a 401K—not the ridiculously generous federal retirement program. Every civilian federal employee with less than 20 years of service will be provided with a 401K. All pension funds accrued by the employee plus interest will be transferred to the 401K on day one. Savings: at least a trillion dollars long-term.

Foreign Aid. Cut foreign aid across the board by 20 percent. That's a modest saving of about 9 billion a year, but you know what, that’s 9 billion that won’t enrich tin-pot dictators, or worse, fall into the hands of our enemies (a la Iraq and Afghanistan).

There’s a lot more we could cut, but let’s take a quick look at the revenue side. We need to restructure the entire tax system. It is hardly “balanced” (as our President is so fond of saying) to have 47 percent of the public pay no income taxes at all. We need a tax system that broadens the tax base, eliminates tens of thousands of pages of special deductions that benefit only a few, eliminates some major deductions, and therein, raises more revenue.

Impossible? Hardly. But to do it all we need leadership, not ideologically delusional thinking. I guess that’s why it won’t get done.