Advice To Follow in Tight Economic Times

[Lucky]

As cities, states, and the federal government face deepening deficits, the temptation to cut services for the poor seems to be gaining traction. In talking about spending cuts, a former US president can be remembered this President's Day for his words on the topic:

"This does not mean sacrificing essential services, nor do we need to destroy the system of benefits which flow to the poor, the elderly, the sick and the handicapped." Ronald Reagan, a then candidate for the office.

[TampaYankee]

As cities, states, and the federal government face deepening deficits, the temptation to cut services for the poor seems to be gaining traction. In talking about spending cuts, a former US president can be remembered this President's Day for his words on the topic:

"This does not mean sacrificing essential services, nor do we need to destroy the system of benefits which flow to the poor, the elderly, the sick and the handicapped." Ronald Reagan, a then candidate for the office.

Don't kid yourself. This is an ideological fight. True we have spending problems -- short term and long term. They need to be addressed differently and not in a vacuum. Cutting alone will not do much if it kills jobs and the economy. The deficit cannot be fixed without a healthy government income which comes only from taxes. The healthier the economy the higher the tax receipts.

The GOP is using this for an assualt on institutions and programs they have never liked and want to see dismantled, from labor unions to planned parenthood and even headstart.

One perfect example is Social Security. This program does not contribute a penny to the deficit. Yet the GOP portrays it as a leading problem in deficit resolution. True there is a long term problem with sustaining Social Security 25-40 years down the road, but not now. That needs to be addressed, but separately as a solution to that narrow problem. Only a small adjustment will suffice to extend solvency to 75 years or more.

The big deficit drivers are national costs of medical care and defense. Any other items cut generally fall into two categories: idedological targets and waste, fraud or abuse clean up. All of these 'other' programs can be cancelled and come nowhere near solving the short and long term deficit issues.

There are two approaches to solving exploding medical cost growth: reform medical care practice to reign in the cost increases year after year or cut government support for medicare and medicaid. The latter approach solves government spending outlay but won't stop medical care from becoming prohibitively expensive for the private sector. It also doesnt explain how we will deal with an elderly and infirm population. Do we permit people to die on the streets or will we set up death hospices to sweep the dying and lingering from the streets.

The GOP being ideologically against government services doesnt want to see successful government reforms that gain widespread popular support among the citizenry. The most striking examples of this are their determination to undermine Social Security, Medicare and Medicaid. Rather than pursue cooperarive efforts to reform programs that strengthen them and reduce costs, for them and for the private sector at large, they seek to weaken them and cut them at every turn. It is their ideology.

As for cutting defense expenditures, we need to rethink our role in the world as the policemen. We cannot afford to maitain bases and 100,000 troops in Europe or fight two wars without paying for them or fight unneccessary wars for that matter. We need to maintain a world presence but we also need to lower our military profile.

However, we cannot do that in a vacuum either. We need to reduce our dependence on foreign nations for our energy needs. I had high hopes we would start a serious alternative energy program but we have been unable to reach consensus for that. The GOP has little interest in getting us off the mideast and Latin American pipelines. We are missing the boat on that and ceding the next two decades of new energy technology to the Chinese. The GOP is happy to feather the nests of Big Oil and and send our armies to insure the pipelines stay open even though our dollars spent go to undermine our interests in wide ranging arenas.

Bottom line: The GOP is the Party of Business As Usual. Presently they are benefitting from popular support because people are unhappy with the economy -- the economy that the GOP bears major responbility for putting in the crapper. Nevertheless, people express unhappiness with who is in power as they have no other alternative.

Now with the GOP ideological assult on public unions it will be interesting to see how the people react to this. That and to ill-considered cuts in pubic employees. I suspect that many voters and those who failed to vote will come to appreciate what they have bargained for only after it is too late to do much about losing school teachers and fire and police personnel -- and maybe Social Security and Medicare/Medicaid benefits.

[Lucky]

On Social Security, is it not true that the government has commingled the funds from the SS Trust with the general fund, so if it had to pay back to SS what it took, the impact on the deficit would be severe? Not sure on this...

[TampaYankee]

On Social Security, is it not true that the government has commingled the funds from the SS Trust with the general fund, so if it had to pay back to SS what it took, the impact on the deficit would be severe? Not sure on this...

The Social Security Trust Fund keeps its own books. The government has borrowed heavily against it issuing Treasury bonds at the going rate against the borrowing just like any other creditor the government borrows from. Those bonds come due and are repaid just like any other creditor. So the treasury notes that document the borrowed funds are already part of the debt. Paying them off will not incur more debt but make for newer recycled debt unless tax receipts pick up to retire that debt. (Asumming interest rates are the same.)

The government may reborrow the funds over again. It matters not to government debt whether the borrowing is from Peter or Paul. If it hadn't borrowed money from the Trust Fund then it would have had to borrow the same amount of dollars from China or who knows else. The debt is owed to the lender and must be repaid. Of course COngress could order the Treasury to default on debt to the Trust Fund but that would send shock waves through the world wide credit markets. Once Congress decided to default on one creditor who knows where it will stop, then or later. Not a confidence builder for the credit markets. If it didnt dry up lending it would certainly lower our credit rating and up the interest rates big time. That would cause a ballooning of the future debt from higher interest rates.

[MsGuy]

Back in the 60's the government began reporting the deficit on a consolidated budget basis, meaning the SS revenues were treated as tax receipts the same as income taxes, excise taxes, etc. This reflects the fiscal reality.

The problem with your take on the trust fund is that the government has no means to meet its obligations to SS other than current SS tax receipts, the general taxing power and borrowing. When SS tax receipts fall short of SS expenditures, the government must either increase taxes, increase borrowing (or cut SS payouts ) or reduce expenditures for other purposes. Another way of saying the same thing: every dollar paid out of the "trust fund" reduces the amount of government funds available for other purposes by an equal amount.

If the fact that the trust fund counts for absolutely nothing sounds wrong, ask yourself this: if the trust fund had never been created, would the 2011 cost to the government of SS (net of taxes) have been one dollar more or one dollar less? The trust made no difference in 2011, not will it in 2012 or 2045. The reason US bonds in the Trust Fund make no difference in the government's ability to meet its SS obligations is that both represent a claim on exactly the same source of funds: the taxing power of the US.

----

One good argument for running a surplus is that we need to shore up the government's borrowing power now against the day that we will need it to cover the massive claims we baby boomers are about to make on the treasury.

----

I think your points on medical care reform are well taken.

----

Soap box under arm, I will now take my leave.

[Guest chillmaster01]

Don't kid yourself. This is an ideological fight. True we have spending problems -- short term and long term. They need to be addressed differently and not in a vacuum. Cutting alone will not do much if it kills jobs and the economy. The deficit cannot be fixed without a healthy government income which comes only from taxes. The healthier the economy the higher the tax receipts.

The GOP is using this for an assualt on institutions and programs they have never liked and want to see dismantled, from labor unions to planned parenthood and even headstart.

One perfect example is Social Security. This program does not contribute a penny to the deficit. Yet the GOP portrays it as a leading problem in deficit resolution. True there is a long term problem with sustaining Social Security 25-40 years down the road, but not now. That needs to be addressed, but separately as a solution to that narrow problem. Only a small adjustment will suffice to extend solvency to 75 years or more.

The big deficit drivers are national costs of medical care and defense. Any other items cut generally fall into two categories: idedological targets and waste, fraud or abuse clean up. All of these 'other' programs can be cancelled and come nowhere near solving the short and long term deficit issues.

There are two approaches to solving exploding medical cost growth: reform medical care practice to reign in the cost increases year after year or cut government support for medicare and medicaid. The latter approach solves government spending outlay but won't stop medical care from becoming prohibitively expensive for the private sector. It also doesnt explain how we will deal with an elderly and infirm population. Do we permit people to die on the streets or will we set up death hospices to sweep the dying and lingering from the streets.

The GOP being ideologically against government services doesnt want to see successful government reforms that gain widespread popular support among the citizenry. The most striking examples of this are their determination to undermine Social Security, Medicare and Medicaid. Rather than pursue cooperarive efforts to reform programs that strengthen them and reduce costs, for them and for the private sector at large, they seek to weaken them and cut them at every turn. It is their ideology.

As for cutting defense expenditures, we need to rethink our role in the world as the policemen. We cannot afford to maitain bases and 100,000 troops in Europe or fight two wars without paying for them or fight unneccessary wars for that matter. We need to maintain a world presence but we also need to lower our military profile.

However, we cannot do that in a vacuum either. We need to reduce our dependence on foreign nations for our energy needs. I had high hopes we would start a serious alternative energy program but we have been unable to reach consensus for that. The GOP has little interest in getting us off the mideast and Latin American pipelines. We are missing the boat on that and ceding the next two decades of new energy technology to the Chinese. The GOP is happy to feather the nests of Big Oil and and send our armies to insure the pipelines stay open even though our dollars spent go to undermine our interests in wide ranging arenas.

Bottom line: The GOP is the Party of Business As Usual. Presently they are benefitting from popular support because people are unhappy with the economy -- the economy that the GOP bears major responbility for putting in the crapper. Nevertheless, people express unhappiness with who is in power as they have no other alternative.

Now with the GOP ideological assult on public unions it will be interesting to see how the people react to this. That and to ill-considered cuts in pubic employees. I suspect that many voters and those who failed to vote will come to appreciate what they have bargained for only after it is too late to do much about losing school teachers and fire and police personnel -- and maybe Social Security and Medicare/Medicaid benefits.

You have identified the GOP as responsible for the exonomic mess we are in that is just materially inaccurate. We as a whole are responsible and democrats are just as guilty as the Republicans as are the Independents. First the Real Estate Lending is not an issue of the Bush administration. These programs were designed and in place during the Clinton Administration also. They only continued on into the BUSH Administration. This was a train wreck that was long on the track and probably even dates back close to Daddy BUSH.

We have as a society over spent and over worked our system. It is just like our government we have not been conservative. We need to stop all this pork spending, special interest spending and including any programs that are just a waste of our resources. Yes, it will not correct the problem but it is a good start. We then need to overhaul our tort system in this country to lower medical cost. We need to drastically curb and control Medicaid and not allow using our most expensive care ER to be used as the local walk in clinic. We also need to cut out Medicaid fraud in handling PAIN RX that are hitting our streets as illegal drugs to our youth. 85-90% of the Rx abuse and sale of such to our use is caused and paid for by Medicaid.

Defense we definately need to take a hard look at and make major adjustments. Again this isn't a GOP versus Democrats this is American People standing up and not taking a free ride.

[ihpguy]

First and best thing to do which means that no one has the balls to do it is to unlink ALL government transfer payments from cost-of-living increases. This will of course cause whichever politicians have the guts to push this through the wrath of the senior citizens everywhere. If they are not hanged or shot, they will at least never be elected again. That's really the only way to resolve the deficit. But what politician wants to be the first to mention what really would amount to career suicide?