America’s Checkbook

On a 60 Minutes report (read or watch it) Sunday, March 4, David Walker, the Comptroller General of the U.S. (head of the Government Accountability Office) speaks frankly and frighteningly about the financial situation of the country. Essentially, according to Mr. Walker, with the aging and retirement of the Baby Boom generation, Medicare and Social Security will bankrupt the country within 35 years without quick action.

You can watch the video to see the argument. But the crux of the situation is that there are three options: 1) cut benefits, 2) increase revenues (taxes), or 3) ignore the problem, stay the course, and hope we can economically “grow out” of the tar pit (I bet you can’t tell which one I favor least). Cutting benefits is the wrong way to go as the developed country with the lowest percentage of citizens with health care coverage. Ignoring the problem is foolish. And that leaves us with the anathema that is raising taxes.

For too long, the responsibility has been put off. Although President Clinton balanced the budget, he didn’t plan for the soon-to-hit dramatic increase in costs. And the Bush Administration has severely exacerbated the situation with tax cuts (disproportionately to the wealthy), a prescription drug benefit that has no new source of revenue, and a war that saps $2 billion per week (and will continue to cost money after it’s over). Now that we’re at record deficits with no realistic “exit strategy,” it’s time for a leader who will acknowledge the problem and face it. S/he will have to make some unpopular decisions; if the phrase “no new taxes” is uttered, it can be followed by “send in the IMF.”

Taxes must go up in order to prevent the country from falling into insolvency (bankruptcy) within the next 50 years. Who will be willing to make this decision? Will it be the overly-business-friendly heir to Bush? Whom should we trust to make the tough decisions, tell us what we don’t want to hear, and implement undesirable, and sometimes painful changes? As much as Bush likes to compare himself to Harry Truman, he isn’t willing to make the really tough decisions. He’s more than willing to put hundreds of thousands of Americans in the crosshairs of terrorists, but he refuses to buck his big-business buddies and make real, meaningful changes at home.

The next President will have to deal with the solvency issue; the longer we wait, the harder it will be, and the worse the tax burden will become. Do we want another “businessman” for President, or a statesman?

9 Comments

Mike W. says:

Just a couple of points. Often (like almost every time) when taxes are cut, revenue increases. Tax increases actually are shown to decrease revenue for the government. Say what you want about Bush’s tax cuts, but they are what has allowed the federal government to continue to operate in this very unconservative (fiscally) administration to the point that the deficit is currently shrinking (if you ignore the war spending which is off budget). My point is that tax cuts increase revenue…it happens every time because people then spend more money, start businesses, stimulate growth and the revenue is increased.

Second, I haven’t seen any tax cuts come my way. I don’t know if I qualify as wealthy, so when you say Bush’s tax cuts went to the “wealthy” what does that mean? What is the break down of the Bush tax cuts and what it did to the brackets?

I do agree that we need to deal with the problems with Social Security, Medicare, and Medicaid. One way would be to get the federal government out of that business and incentivize states and individuals to take it into their own hands (similar to Romney’s healthcare plan in Mass.). But just maintaining the status quo and throwing more money at programs that are so incredibly inefficient (I see the ridiculous rules and inefficiencies in Medicare and Medicaid every day) there will be no solution: the problem will just get worse.

Reluctant says:

I just read the full article from CBS News. Walker says that raising taxes isn’t the answer. It may help slightly, but there are other things that will more drastically help. And the main thing…. the rising cost of health care. It’s those dang doctors… gouging people. Just kidding Mike 😉

But seriously, what can be done there? This was rather enlightening for me:

“On cost we’re number one in the world. We spend 50 percent more of our economy on health care than any nation on earth,” he says.

“We have the largest uninsured population of any major industrialized nation. We have above average infant mortality, below average life expectancy, and much higher than average medical error rates for an industrialized nation,” Walker points out.

That’s just crazy. We spend so much on health care and we aren’t getting back our return on investment. Seriously… what can be done? Previously, I thought some hybrid universal health care was an important goal for the next few years, but is that just going to make things worse?

Centrist says:

Mike,

IRT the tax cuts to the wealthy, a CBS story from 2004 states “[T]he effective tax rate for the top 1 percent of taxpayers dropped from 33 percent in 2001 to 26.7 percent this year, a decline of 19 percent. The middle 20 percent of taxpayers saw a decline of 4 percent.” Everything I have seen points to more relief for the rich than the middle class. Nothing I have read or heard indicates the opposite. And maybe that’s what stimulates the economy, because the investors are the wealthy and a 1% change for them equals a huge Dollar amount to be invested.

I don’t think that letting the “market” determine the future of the U.S. as a “continuing interest” is a good idea. As shown in the last two weeks, our economy is not isolated; a shock or collapse in China or elsewhere can have a HUGE impact on us, even if we have good economic and market policies and practices in place.

I think government does indeed need to step in on healthcare because the demand is almost “perfectly inelastic,” meaning the demand remains rather constant despite changes in supply or in cost, like for diapers and food. However, unlike for diapers and food, there is not a widespread possibility of an alternative competitor breaking into the market—holistic medicine, acupuncture, etc. have been around for years and still haven’t broken the virtual monopoly of western medicine. All of this creates a situation where people will pay whatever they have to for their health, which leaves the door wide open for abuse of the system. Ironically, this morning I read a letter from the board chairman of the AMA to US News and World Report commenting on a story about healthcare. He offered some solutions, none of which included lowering costs.

I know that government handles programs like Medicaid and Medicare clumsily and wastefully, but it doesn’t have to. This issue should be addressed as part of the reform.

I think that we need to wake up and figure out our priorities. Our national stability relies greatly on our economic power. I work in a company that has revenues exceeding a half billion Dollars, but it’s cash strapped. The U.S. could end up in the same situation with a booming economy, but with our debt being so high we can’t move. The U.S. is #32 in the world in debt/GDP ratio with 64.7%, twice as much as Angola, South Africa, and Peru. It couldn’t buy a house at that rate.

If our country goes into another Great Depression because of this, people won’t care as much if they can get a CT scan or Lasik surgery; they’ll just be looking for the next meal.

Centrist says:

Dan,

I think having a single payor system will reduce a lot of the waste and will allow the government to control costs and influence prices better. Hopefully this won’t drive out too many of the talented doctors and pharmaceutical researchers who are in it just for the money.

When you realize how much more we pay and how poorly we measure up to other countries’ coverage and effectiveness rates, the only factor I can think that makes the difference is price. And the market, as stated in my response to Mike, is not going to address this, but rather exacerbate it.

Mike W. says:

But should the government fix or “influence” prices? Recently, Argentina’s president decided that every Argentine has a right to affordable beef (which of course it does). But by fixing the price of beef at a low level to make it affordable, producers stopped slaughtering beef for sale because it wasn’t worth it to them, and supply plummeted and prices were pushing higher. Is that what we want to happen to healthcare?

I’ll discuss the other points later.

Centrist says:

Mike,
I know that tighter government control is not a perfect solution, and there are a lot of people smarter than I out there who could come up with better ones, but there have to be changes made. As I said to Dan, hopefully this won’t drive out too many of the talented doctors and pharmaceutical researchers who are in it just for the money. I think there can be measures put in place to prevent this.

I know that the reason we have the best medical care in the world is because of the money to be made in providing it. But are we really GETTING the best medical care in the world, or do we simply have ACCESS to it at an unattainable price? More than half the country isn’t GETTING it, despite living in the land of big PHARMA and the CT scan. It’s nice that it’s there, but there’s a reason why about 1/2 of all bankruptcies in the country involve medical expenses.

I don’t have any great ideas, and I have little to no knowledge of the industry, but if the rest of the world can do it, why can we at least come a little closer?

Mike W. says:

The way the rest of the world accomplishes it is about the only way to do it. If you want to limit cost, you must limit access to the product. For example, American use 90% of their total life expenditure in health care in the last 3 months of their lives. In Great Britain it has been recommended (and my understanding it that it is in practice) that persons over the age of 70 years shouldn’t be admitted to the ICU and patients over the age 85 should not be admitted to the hospital. Are we willing to make those decisions and injunctions in the U.S.? The rest of the world deals with death a lot differently than we do in the U.S. They accept it as a fact of life; we deny its inevitability.

Are we as a society willing to wait for MRIs and cardiac catheterizations and take the chance that we may die of a heart attack while we wait? People use (dare we say, abuse?) the emergency department because it’s fast and convenient, while being exceptionally more expensive than other modalities or schedule of care. Physicians feel the need (especially those given the accountability by society in emergencies) to make sure that, each time someone comes into the ER, there is nothing going on that is potentially limb or life threatening. This raises costs dramatically. If I practiced based on what I thought was going on, I could save 75% of the costs generated by practicing to make sure nothing serious is happening. It depends on what we want as a society: reasonable health care for all, or exceptional health care for emergencies or perceived emergencies.

Regarding tax brackets, I don’t think I’m in the top 1% of tax payors, but I pay (including federal and state income taxes, FICA and Medicare taxes) about 38%. It’s a big chunk. I’m fine paying it because I do feel that taxes are my part of participating in society. My point is that it is still pretty high.

One way to increase Social Security revenue is to continue to tax the income above $95,000. Currently the income above $95,000 is free of FICA assessment. To increase that ceiling to $120,000 would obviously increase the revenue (I don’t know by how much). That might be a start.

Reluctant says:

One way to increase Social Security revenue is to continue to tax the income above $95,000. Currently the income above $95,000 is free of FICA assessment. To increase that ceiling to $120,000 would obviously increase the revenue (I don’t know by how much). That might be a start.

Now I like this idea. Why is it not in place already? It’s not like we are taxing only the rich. It would be eliminating an exception for the rich.

I’ll vote for this!

Centrist says:

Dan,
The reason they cut it off at $95K was that WAAAAY back when they made the rule, they figured that those making above $95K would take care of their own retirement, so they shouldn’t be required to contribute to Social Security.

I agree that it should be raised at least to $120 because 1) it’s needed to maintain the system, and 2) I think that $95K/yr doesn’t go as far as it used to toward retirement.

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