Sunday, June 19, 2011

The Boston Globe Is Ready for Entitlement Reform

A Boston Globe editorial today tries to move along the deficit talks wthout really getting why they are necessary.

"There are, indeed, serious problems with the federal budget. The structural deficit is projected to explode due to increased spending on Medicare, Medicaid, and, to a lesser extent, Social Security. This deficit must be curbed. But that’s not what’s keeping people out of work today. It’s not what’s keeping companies from hiring. It’s not what’s keeping people from buying homes and cars and electronics.
Oh, I think the deficits are what got us into this mess, just like the Reagan-O'Neil deficits in the 1980s brought on the 1987 crash and the ensuing recession which cost George H.W. Bush his reelection in 1992.

That concern for the structural deficit leads to this bit of wisdom:

"That means enacting a combination of modest payroll-tax increases and benefit adjustments for Medicare, Medicaid, and Social Security. Those should include raising the retirement age for young workers, indexing Social Security benefits to inflation rather than the more generous formula currently in use, and grappling intelligently with ways to curb unnecessary medical procedures that nonetheless get charged up to Medicare."
If the Globe wants to get behind entitlement reform, I won't argue with that. But is that enough? The Globe admits its entitlement reforms "won't necessarily boost the short-term economy."

The effect of the 2008-2009 financial crisis was to undermine the federal tax base. There just isn't as much tax revenue coming in as there used to be. The shortfall has been made up by borrowing, which for the short term of the last couple of years may have been necessary but is not sustainable much longer. That means the federal government needs to reset to a lower level of spending, across discretionary and defense accounts too.

Here are my ideas:

(1) U.S. Tax revenue fell about 20% from a high in 2007 to 2009, while revenue may have recovered somewhat in 2010, that needs to be the starting point for budget cuts.

(2) Delay the implementation of Obamacare for two to four years. As Romneycare was the model for Obamacare, get rid of the extra pages Nancy Pelosi added, and let each state decide on the insurance mandate.

(3) Cut military spending as we bring our troops home from overseas.

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