Deficit and Debt II

Cutting the Big Three

"The government deficit is the difference between the amount of money the government spends and the amount it has the nerve to collect." –Sam Ewing, 1921-2001

Now, what do we do about the Big Three – the federal government’s largest budget expenditures?

The biggest, at present, is Health and Human Services, which includes both Medicare and Medicaid. I assume it also includes the spending required under the new Affordable Health Care Act, the biggest portion of which will take effect in 2014.

Medicare is paid for, as we all know from our pay stubs and W-2 forms, by equal contributions from employees and employers. Please note that the chart I referred to in Part I shows only spending.

Medicaid, on the other hand, is almost fully paid for by taxpayers. It provides medical services to those with low and moderate incomes.

I think there are two desirable ways to reduce expenditures for Medicaid. The first is to increase employment and the second is to reform our tax system.

You can see from the chart that spending under this line item has been increasing substantially, and this is a direct result of the economic recession. Simply put, the more people out of work, the more people eligible for Medicaid. The increase also includes a growing number of older citizens whose retirement income is very low. Increased employment will help both of these groups, at least in the long run.

Fixing the tax code could also reduce the number of our citizens who cannot afford medical care and thus need help from Medicaid. It could help those people in many other ways, as well.
For decades, the rich have been getting richer and the poor poorer. The middle class has been shrinking. As reported in the International Business Times last September, “The top 20 percent of American earners – those making more than $100,000 annually – received 49.4 percent of all income generated in the country, compared with the 3.4 percent earned by those below the poverty line.

“That translates to a ratio of 14.5-to-1, up from 13.6 in 2008 and almost double the low figure of 7.69 recorded in 1968.

“The U.S. income gap between rich and poor is the greatest among Western industrialized nations” (http://www.ibtimes.com/articles/66809/20100929/income-gap-census-bureau-poverty.htm#ixzz1D16YL2gf).

People making the minimum wage, even much more than the minimum wage, are having great difficulty providing their families with even basic food, shelter, energy, transportation, and education. They pay exorbitant interest rates because their credit histories are in shambles. Most of the bills they pay have late fees, and they fly so close to the ground with their bank accounts that they often get hefty overdraft charges. They get their utilities cut off and have to come up with large deposits in addition to the arrears. If the family car breaks down they can’t pay to fix it, and that puts their jobs at risk. They never catch up, and it gets worse every year.

These are people who get Food Stamps and utility assistance and other government help, and their children are covered by Medicaid. That’s the price we pay for their inadequate incomes.

No, I’m not a Huey Long-style advocate of redistribution of wealth, but I do believe that our tax code puts an unequal burden on the growing population of the working poor. I think we should exempt more income from taxation.

According to 2011 guidelines from the U.S. Health and Human Services Department, a single person making $10,890 per year or less is in poverty, as is a family of four making $22,350 or less. (These numbers are higher in Alaska and Hawaii, where it costs more to live.) I think it would be reasonable to double those amounts, and let those who make that much or less be totally exempt from income taxes. Millions of our citizens would then be freed from the expensive and enervating annual ritual of filing tax returns. They would get more take-home pay. And they would need less government assistance.

There’s no “poor people’s association” lobbying Congress for special exemptions and loopholes, but there are plenty of groups working for such perquisites on behalf of the wealthy. As a result, the tax code is about the size of a major encyclopedia, with smaller print. I would be in favor of getting rid of most of the loopholes and taxing those who make more than twice the poverty rate on a sliding scale. It would have the effect of reducing that 14.5-to-1 inequity cited above.

O.K. We’ve solved that problem. All we have to do is get those people on the bottom of the income scale to vote for tax reform, right? There sure are lots of them. Well, unfortunately, many of them listen to Rush Limbaugh, watch Faux News, and vote Republican. Many of them think Barak Obama caused their financial distress. Changing that is the real challenge.

Now for the Department of Defense. As I write this, an ocean of Egyptian citizens is assembled in Cairo’s Tahrir Square demanding the ouster of Hosni Mubarak. There are similar uprisings in several other Middle East countries. What this means for the United States of America has yet to be determined, but such turmoil is always dangerous, despite the solidarity we feel towards those struggling to free themselves from repressive governments. The world is a dangerous place, and we need to be ready to respond, anywhere on the globe, to threats of many kinds. We need a healthy, efficient military.

That being said, our military has wasted billions of dollars in recent decades. Congress, which is charged with overseeing its expenditures, sometimes exacerbates the problem. Witness the C-17 transport plane. Its parts are made all over the country, that is to say, within many different states and their several congressional districts. The Department of Defense told Congress it didn’t want any more C-17s because it had a less expensive alternative. Congress voted to buy more C-17s. There are two meanings of the word “oversight,” and sometimes Congress seems to be using the wrong one.

There has always been waste in the Defense Department. We’ve all heard about pricy toilet seats and spanner wrenches. We’ve seen the evidence of obscenely excessive payments to government contractors. We know there are outmoded weapons systems that keep getting funded. But given the immense size of our defense expenditures, even a reduction of just a few percentage points would result in very significant savings, probably more than would be realized from all those things I mentioned in Part I.

Well, the Republican Party, trying to stuff itself back into the garments of fiscal restraint it discarded years ago, is talking tough about defunding NPR, but defense spending, it says, is not on the table. The GOP’s pompous hypocrisy is sometimes more than I can stomach.

The defense budget must be “on the table.” One of the basic tenets of our government – of the Constitution Republicans are so quick to extol – is citizen control of the military. Every new or renewed military program should be subject to strict analysis based on need and economic viability. That’s what we pay our members of Congress for. I don’t care if defense contractors offer them a better deal.

Our two lengthy wars are winding down, we’re told. They will have cost us trillions of dollars. As we withdraw from Iraq and Afghanistan it is the perfect time to reassess our defense spending. I’m sure there are significant savings to be found there.

And, finally, let’s look at interest on the national debt. You’ll notice on the chart that Treasury Department spending in Actual 2010 was over $250 billion less than was spent in Actual 2009. Part of that was because of reduced bailout and stimulus funding, but much of it is due to extremely low interest rates resulting from the recession. We’ve been paying off maturing bonds and bills that had high interest rates and issuing new ones with very low rates. That’s a good thing, but it won’t last. As the economy recovers, there will be more demand for investment, and that will cause interest rates to rise.

We’ll have a fine line to walk in coming years as the economy regains strength. As soon as it does we need to start reducing the debt while we do our best to keep inflation under control. It’s clear that we will pay off some of that debt in inflated dollars, but we can’t use that as our strategy. The first thing we have to do, as soon as the health of the economy improves, is provide the government with income that equals its expenditures, in some combination of cost reduction, increased revenue from increased employment, and (gasp!) tax increases.

Then we can start paying down that debt.