Saturday, September 18, 2010

Cutting The United States Budget

As noted in my previous post, for 2010 we have a federal budget structural deficit of $1.17 TRILLION dollars. 55% of the federal budget is spent on entitlement programs. In order to balance the federal budget and stop perennial deficit spending, we MUST cut entitlement programs. It is no longer a question of whether or not we "should" help senior citizens and disabled persons. It is a matter of how much assistance we can afford to provide.

Here's my rough suggestion, in order to start a discussion on the subject:

1) Let's look at the numbers: The estimated payroll tax revenue for 2010 will be $940bn. The budgeted outlay for services funded by payroll will have been $1,992bn (in other words, just about $2 TRILLION). Stated another way, $1.05 TRILLION of the $1.17 TRILLION deficit spending will go to funding Medicare, Medicaid, and other federal welfare programs.

2) Change Social Security from a defined-benefit program to a defined-contribution program. Under the current program, the federal government is mandated to pay a defined benefit ("X" dollars per month) based on the lifetime tax paid, and mandated to increase the amount of payments each year (Cost Of Living Adjustments, or COLA). The government is mandated to borrow money to pay these mandatory payments if social security tax isn't sufficient to cover the expense. Under a defined contribution system, the amount of social security payments would be determined by the amount of Social Security tax collected the previous year, and would not be based on lifetime income and/or lifetime tax paid.

As it stands now, Social Security tax is sufficient to pay Social Security benefits. However, with the expected growth in beneficiaries, by 2017 the tax will not be sufficient. Obviously, this means borrowing a greater amount of money each year.

As an example of how this would work (the numbers used are for illustrative purposes only):

Social Security tax for 2011= $500bn
Social Security funding for 2012= $500bn
Social Security recipients= 50 million
2012 benefit to each recipient= $10,000 or $833 per month for 2012

Under this example, the amount of benefit for 2013 would be determined by the number of new enrollees for 2013 and the amount of Social Security tax collected in 2012, and not based on a COLA formula.

The question begs, then: Who can live on $833 dollars per month? The answer is this: Social Security was NOT INTENDED to fund a lifestyle! It was intended to guarantee a minimal income for those unable to work due to age or disability. The fact that it has morphed over time into a lifestyle entitlement doesn't justify keeping it as such, especially when we can't afford it any more!

3) The health services paid by Medicare and Medicaid must be greatly reduced. Some of the benefits given are truly ridiculous (i.e. taxpayer-supplied erectile dysfunction treatments), and some are truly wasteful (taxpayer-supplied multi-thousand-dollar electric scooters). Again, the amount of money doled-out must not exceed the amount of money collected the previous year. It is a fallacy to believe that we can afford to pay most of the costs of healthcare for the 'sickest' portion of the public. It's not a matter of whether we would "like to help" the elderly and the disabled. We simply cannot afford to do so.

4) Responsibility for the State Children's Health Insurance Program (SCHIP) should be fully transferred to the states. The total federal expenditure for SCHIP for 2009 was $9.2bn- in other words, less than 1% of the amount of federal individual income tax collected. I am going to go out on a limb and say that there is plenty of wasteful spending to be cut at the state level to cover this amount.

Incidentally, the primary purpose of reorganizing SCHIP would be to prevent it from being used by Congress as a loophole to engage in further deficit spending through expansions of the program. A $9.2bn "Children's health program" could easily become a $920bn "Children and Families program"- in other words, a single-payer health care system for the entire nation. As a side benefit, the taxpayers would save a little money, since SCHIP, like Medicaid, is a partnership between the federal and state governments, who have redundant administrative costs. Save the taxpayers the federal administrative costs and have the taxpayers pay the tax directly to their state government, or cut from other areas by the equivalent amount.

5) Place a cap on payroll tax rates. Period. Prevent FICA from growing into a second major income tax. Also, place a ban on the expansion of programs funded by FICA.

6) Federal unemployment expenditures should only cover federal employees. Let the states handle unemployment at the state level. In a future post, I will lay out my concept of unemployment insurance and state pension reform (they're two parts of the same proposal).

I recognize that all of this represents severe cuts in public welfare programs. There are needy people in our country. However, it is not the role of government, funded by the taxpayers, to provide for the needy. It is the role of families and charities to do so. Assistance should be just that, assistance.


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