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November 2013
In Between Shutdowns…Big Decisions Should Be Made
By John Paul Galles

What did we learn from the recent shutdown of the federal government? Or was anything learned from the shutdown? Depending upon your point of view, you will likely have different answers.

 

According to the Tea Party faction of the Republican Party, the federal government should have no role in our lives except for the bare essentials. The opposing view offers a different direction…that our government should encourage an economy that works for all of us and give kids a fair chance at a good life. From one perspective government is evil and overbearing and from the other government is a force for good.

 

Somewhere between those two philosophies is the essence of the budget debate that lies beneath the rhetoric and the partisanship that seems to be tearing us apart.

 

Government is a system of enabling or controlling public policy decisions for the benefit of the country and its citizens. Put more simply, government is a way to decide what we do together as a nation.

 

And so, what did we learn? We learned that 800,000 workers were laid off for 16 days. We learned that national parks and monuments were closed to the public. We learned that we did not save money…in fact, according the S&P Index, we actually lost $24 billion out of our economy. Cancer patients were not admitted and treated at the National Institutes of Health. And government agencies were unable to perform their regular functions supporting business growth and/or regulation.

 

The original purpose stated for the shutdown was to de-fund the implementation of the Affordable Care Act, which, in fact, has suffered more from inadequate planning and implementation than from the actual shutdown itself.

 

When all was said and done, what legislators agreed to do was to once again kick the can down the road. They effectively set up another deadline to resolve the differences over government spending (i.e. government activities) by putting federal workers back to work and setting up a “budget conference committee” made up of 29 Senate and House members to make recommendations December 13th and action by January 15th or the government will be shut down again. They also extended the raising of the debt ceiling to February 7th.

 

What perplexes most people about the federal budget are the numerous special interests that seem to control certain elements of the federal government that run contrary to one’s own interests. It is hard to comprehend all the special interests so we attack them as lobbyists, unions, corporations, banks, oil companies, environmentalists, non-profits, religious groups, teachers, doctors, lawyers, farmers, poor, rich, military and foreign. Everyone seems to attack other special interests apparently thinking theirs is the common interest.

 

The other overwhelming problem with public discussion of the federal budget is its enormity. Obviously, with $3.034 trillion in revenue projected and $3.778 trillion in spending for FY 2014, our budget is out of balance as a result of the recession and all the job losses.

 

But let’s take a closer look.

 

Nearly 61 percent of the $3.778 trillion in spending is applied to Social Security, Medicare and military retirement benefits. Mandatory spending of $2.308 trillion includes $860 billion for Social Security, $524 billion for Medicare, and $304 billion for Medicaid, and interest on the national debt.

 

The balance of federal spending is budgeted at $1.242 trillion to fund all the other functions of government. That spending is actually down from the previous year. Nearly half of that amount is directed toward military spending for about $644 billion. So that leaves roughly $598 billion for fixing roadways, schools, agriculture, etc.

 

Relative to the total spend, the federal government was shut down impacting a mere 16 percent. That’s not the part that’s sinking our boat. That’s not the part that will be twice as large 7 years from now if we can’t agree to do something about it.

 

So, where should we focus our limited time between now and January 15th to make the greatest impact on reducing our federal debt? With a grand total of about $17 trillion in accumulated debt obligations, primarily from Social Security, Medicare, military pensions and interest, the answer should be clear.

 

Obligations to the elderly in America will only increase every year. Nearly 10,000 baby-boomers retire every day. Medicare is posted at $524 billion in FY 2014, but that number is projected to rise to almost double that—over $1 trillion—by 2020.

 

 

Changes will be relatively miniscule if we make them now; they will be gigantic if we make them later. For example, one recommendation from the Simpson-Bowles Commission would save $585 billion over 10 years by slowly raising the Medicare eligibility age from 65 to 67 by the mid-2030s. It would also change how Medicare beneficiaries pay for Parts A and B (the programs that cover hospital care and doctor visits) and expand means-tested Medicare premiums, so the highest income beneficiaries would pay more for their premiums.

 

Even though retirees have paid into Social Security and Medicare for their entire working lives, that money has not been put aside and/or invested for future expenditures. It has been borrowed and spent for previous retirees. Add to that, the facts that we have fewer workers contributing to the systems than ever before and that older people are living longer lives and receiving more expensive and complex medical treatments.

 

With limited time, we must turn the focus and the attention of our elected officials to the long-term fiscal obligations that are more than we can afford. We have limited choices, but we must consider cutting benefits, raising taxes, means testing the benefits, and/or raising the retirement age. Unfortunately, those are the tough choices.

 

If we are to avoid another shutdown, we must act decisively. We should be discussing and determine what we want our government to do about these obligations. Our decisions will dramatically affect our children and their children over their lifetimes.

 

Failing to act is the worst choice we can make.

John Paul Galles is the publisher of Greater Charlotte Biz.
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