Entitlement Reform Is The Only Way to Curb Federal Deficits

The president delivered his budget wish list to Congress this week. The country is facing many daunting and expensive issues that are reflected in this proposal. It’s important to remember that his budget is far from the final word. It’s up to Congress to craft an acceptable law. This is going to be a battle royal on the hill considering the bad blood in both houses of Congress.

There are two overriding concerns regarding the budget. The first is funding for several major initiatives (such as infrastructure), rehabilitation of the military, new entitlements and other aid programs.

The second concern is the rapidly growing annual deficit and national debt that will be accelerated by a new round of spending. Americans will be hearing a lot about these broad issues in the coming days and weeks. This essay will hopefully clear up some commonly held misconceptions about spending and debt at the federal level.

Right out of the box Democrats are going to step up criticism of the administration for the recent tax cuts in the face of greater proposed spending. They will ask why tax relief was bestowed upon corporations and affluent people. The response to this query is that lower corporate taxes will make America more competitive and boost the economy. Workers will (and already have) shared in the improved conditions.

Affluent people are not directly benefitting from the tax cuts. The fact is Americans in the highest tax brackets will be paying more to Uncle Sam. However it is true the group should enjoy higher stock prices that will result from greater corporate profits.

The question is whether tax reform will actually bolster economic activity and increase pretax profits for companies and individuals. The latter will increase federal tax revenues. If so the impact on the deficit will be negligible or at least bearable.

The new budget, if enacted in whole (highly unlikely), or in part (more likely) will increase the deficit by several trillion dollars even with a 3%+ economic growth rate. The latter is the growth estimate being used by Trump’s people. It’s about 1 percentage point higher than most other estimates.

The next thing to consider is whether the federal government should set aside concerns about inevitable higher federal debt. In other words, can the government service substantially higher debt in the future? The answer is based upon one’s estimate of economic growth and, more importantly long-term control of entitlements.

Regardless of whether the economy grows at 2% or 3%, entitlements such as Medicare, Medicaid and Social Security are going to create a financial crisis down the road. Our population is ageing, and so everyone will be spending more money for health care including the federal government. A larger population of seniors will also increase social security payments dramatically over time.

With this in mind it makes sense to try to control discretionary and defense spending, but it will not be enough. Our politicians refuse to focus on the real long-term problems. The federal government’s deficit will continue to skyrocket so long as entitlements continue to be untouchable.

The political implications of decreasing medical support and financial security are too much for most politicians. This is precisely why America needs change in Congress. We must replace the current group of underachievers that does not have the courage to tell the truth about entitlements, with individuals that are courageous enough to identify problems and offer solutions even if they are unpopular.

Everybody wants more services and more aid, and everybody wants military strength and lower taxes. The resultant numbers don’t add up. This means that the budget being presented will be a threat to America’s financial security.

The impending debate is going to be a colossal subterfuge, a lie about the ability of our government to meet its obligations to its citizens and its creditors. For more than two and a half centuries our country has only increased services without asking for anything in return. We can no longer afford to pay for outdated aid programs, or outdated weapons systems. And we can no longer protect the entire world.

 

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