The coming soft bankruptcy of the USA


#1

The following is a good list of what lies ahead. I’ve left off the top 3 points and provided the link for those interested in seeing the whole top 10.

Holman Jenkins says that a nicer term for the inevitable U.S. default is ‘entitlement reform’. Here are the top 10 inconvenient truths of the coming soft bankruptcy of the United States:

** 10.** A few years ago, when the economy was humming, a common estimate held that federal taxes would have to rise 50% immediately to fully fund entitlement programs.

** 9.** Today, a 50% tax increase would be needed just to meet the government’s current spending, never mind its future obligations.

** 8.** State and local taxes would have to increase by $1,385 per household immediately to make good the pension promises to state and local workers, including firefighters and cops.

** 7.** Under Paul Ryan’s Medicare plan, the affluent would pay more.

** 6.** Under President Obama’s plan, the affluent would flee Medicare to escape the waiting lists, shortages and deteriorating quality as Washington economizes by ratcheting down reimbursements to doctors and hospitals.

** 5.** You don’t have a legally enforceable right to the free care you imagined you were promised.

** 4.** If cutting subsidies for Big Bird is unthinkable, a joke, how much more so cutting benefits for middle-class voters?

Top 3 reasons here: Doug Ross @ Journal: THE COMING U.S. DEFAULT: Top 10 Fun Facts


#2

Read the column the other day; nice to see it broken down into ten points.

For anyone following the debate over our debt it’s obvious that any talk that centers on other than Medicare, Medicaid, and Social Security is just that; talk and not a serious discussion of debt reduction. Of those, Medicare will prove the most intractable. As one looks at it, substantial reform of that program, which will have to include some move towards privatization as well as age and means testing, will of necessity require taxing employer-provided health insurance as earned income. It is unlikely that we’d require seniors to purchase insurance with after-tax income while allowing employees a tax-free ride. That move alone would cause younger employees, over a few years, to opt out of employer-provided insurance while causing a slight rise in demand for personal insurance policies. Over the long run, demand for employer-provided insurance would dwindle and disappear.

I’ll greet sequestration optimistically…does anyone think it really isn’t going to happen?..because it vacuums up any available money for discretionary spending for the foreseeable future. The party built on spending will find itself scrounging over scraps while advocating tax increases. That’s a win politically, if not fiscally. When Amtrack shuts down and oh yeah, Big Bird, their beneficiaries are going to find a discussion of health insurance unavoidable. Envisioning Obamacare morphing into something workable dampens that optimism.

Personally, I think the bond market, particularly that part in Treasuries, is going to collapse before anything meaningful gets done. But, that’s just me be rational.


#3

Can we compromise and be willing to cut military spending as well as reducing cost in Medicare and Social Security? The reason people laugh at cutting payment to PBS and NPR is because that spending comprises such a small amount of the budget that cutting it would do nothing to the debt. The big spending takes place in Medicare, Social Security, and Military. The left wants to cut military spending, yet will not allow the same to be said of Medicare and Social Security, and the right want to cut Medicare and Social Security, yet cutting military spending is not on the table. A compromise is somewhere in the middle.


#4

That’s an analysis is search of seriousness.
And we’re glad you brought up Big Bird and PBS in making it. If defense were cut by $200 billion, a 35% cut, it amounts to a deficit reduction of 20% in the federal budget. I’m not denigrating that, and I feel that defense will be cut,just when it probably ought to be increased given world affairs and the state of its R&D budget…but it won’t be cut by 35%. Assuming it were though, and the cuts remained over the next five years, that equates to only one year of federal deficit spending. Another $800 billion annually must be found. The PBS budget is chump change by comparison, but cutting it does offer one benefit not available to defense spending cuts; eliminating PBS spending offers permanent savings. We don’t need PBS while we’re always going to need defense. Both should be cut. One permanently.

There is no “compromise” position between cutting defense and cutting Medicare, Medicaid, and Social Security. Defense is a part of discretionary spending, and it may be cut, frozen, or altered at any time. If we merely freeze it, attrition and inflation reduce its budget all on their own. MC, MC, and SS are non-discretionary spending, meaning they increase all on their own. We’re not only adding to the ranks of each every day, they are subject to inflation indexing which further increases their costs. That’s why sequester, which falls disproportionately on defense, does nothing for the long term…meaning next year…deficit spending problem. There is no current proposal to stop people aging, retiring, or needing insurance in their retirement years.

Another way of looking at it is imaging a snow storm. Defense is snow falling on a lake with slow accumulations, until the wind comes up and drifts form. Entitlement spending on MC, MC, and SS is snow falling on a long hillside with a snow ball rolling down it. As long as the ball keeps rolling, and the snow keeps falling, it will get larger and larger as time goes own. Even if the snow stops falling, accumulations on the lake remain…yet do not increase, and actually decrease over time, yet the snow ball keeps rolling, picking up whatever snow remains in its path.

The number remains $1 trillion. Find it and you haven’t reduced the debt by a dime. The only question, and it is not open to compromise, is how Medicare, Medicaid, and Social Security get reformed to slow their growth to manageable levels. Obviously, a growing economy is the only answer to long term sustainability. The $64 question is whether or not any Medicaid program can be reformed enough to still meet the criteria of Medicaid and not be a fiscal snowball. 16% of the nation are already on Medicare. When Democrats claim that Republicans such as Paul Ryan “want to end Medicare as we know it” they are probably correct, and they are also stating the only solution to the nation’s fiscal woes. Medicaid will also have to be reformed, if only because of Obamacare and the fact that, when Medicare is phased out, it will put pressure on Medicaid. SS is easily fixable through a variety of actions that threaten relatively few…in a political sense. There will be relatively little debate on indexing benefits for income, raising the retirement age, and removing the cap on taxable earnings.

A serious argument will not involve defense spending or Big Bird, anymore than it will involve agriculture subsidies…all otherwise worthy topics regarding spending cuts. A serious discussion will involve one single topic; the fundamental idea behind Medicare, that elderly people cannot buy affordable health insurance on the open market. And yeah, along the way we can “compromise” and eliminate federal flood insurance.


#5

Social Security reduction, ARE YOU SERIOUS?? that IS MY MONEY! I PAID INTO IT. medicare is already cutting back, to where I do not get certain medications anymore, my deductable is raised from 250 to 350, certain procedures are eliminated, ALREADY!! Obama’s hands are already busy.
CUT FOOD STAMPS! unemployment, the entitlements that now drive the economic wagon. CUT the government employment rolls, exhorbitant federal salaries. [wer all know this is NOT going to happen]


#6

I’d be remiss if I didn’t also mention that Medicare spending, which is driven more by the increase in expenditures per person more than it is by the increased number of people on its plan, is merely the largest symbol of a broken health insurance policy in this nation. Medicare is actually increasing at a slower rate than is private insurance. But hidden in that statistic is the fact that health care providers lay off their Medicare losses on costs to the privately insured. Medicare is the largest player in the health insurance market, but that doesn’t mean it is capable of dictating health care cost rates for the nation as a whole. In fact, government’s efforts just to limit increases in per patient costs have been notoriously unsuccessful, resulting in shortfall of payments to doctors and health care providers which are then “fixed” in the dark of congressional night every couple of years or so.

Absent an open market for health insurance there will be no containment of health care costs themselves…and we haven’t even started that discussion, but it is what the budget deficit comes down to in the end.