U.S. between rock and hard place
Mitch McConnell, the Majority Leader in the U. S. Senate, made a clear declaration as to what his country could expect if the Republicans were to retain control of both Houses of Congress after the mid-term elections on Nov. 6.
Given the massive increase in the annual budget deficit, over $1 trillion, occasioned by the tax cut that he engineered, he opined that there would have to be cuts to both Social Security and Medicare expenditures.
Those two entitlement programs have long been targets for the right-wing conservatives who control the Congressional Republicans.
In 2017, Social Security cost over $952 billion and Medicare $702 billion and together they account for just over 42 per cent of program expenditures of the federal government.
While these are large numbers, what’s really scary is the projected increases for these two programs. Large numbers of workers will be retiring in the coming decade as the baby boomers of the postwar generations leave the labour force.
As this population cohort ages, their demands on the health care system will intensify. So the handwriting on the wall is quite clear: either cut back on the costs of these two programs or raise taxes. Either choice is an unappealing prospect for Congress because the voters who elect them believe devoutly they are over-taxed — despite all the evidence to the contrary.
Who really benefits from these two programs?
In absolute numbers, it’s people with the lowest incomes, rather than their more prosperous fellow citizens. For retired people in the lowest income quartile, Social Security payments constitutes more than 80 per cent of their annual income. And since they are more numerous than those in the comfortable top 10 per centof income earners, the burden on the Treasury is high.
Cutting Social Security benefits would cause substantial hardships for the less affluent. Likewise reducing the coverage of Medicare will lessen the overall health of the older cohorts of the population thereby, in the longer term, increasing demands on the health care system
Why then do McConnell and his followers want to cut these programs? For American conservatives, cutting both Social Security and Medicare makes great sense. It would reduce the economic role that government plays in the national economy. Moreover, both programs are ideological anathema to conservatives because they are perceived to “reward” profligate voters who do not save enough for their retirement or budget for health insurance.
Never mind that, for a large portion of the elderly population, personal income barely covers the essentials of housing, food, clothing and transportation.
Over the next decade, expenditures on Medicare and Social Security are projected to increase at more than twice the growth rate of the total economy. Unchecked and assuming tax rates are not raised, the squeeze on the other items in the budget will become exceedingly intense.
Of course, defence expenditures (over $900 billion annually) are an even bigger target for cuts but the Republicans have traditionally been strong supporters of the military.
Put in stark terms, the U.S. government is going to find itself between a rock and a hard place.
Alternative A: Cut Social Security payments or lessen the coverage of Medicare and incur the mighty wrath of the voters.
Alternative B: Raise taxes and suffer the same fate. Choosing either alternative is likely to be equivalent to stepping on “the third rail” leading to instant political death.
The immediate budgetary future in the U.S. will be immensely challenging. Ever-escalating deficits will send interest rates through the roof so just ignoring the worsening state of affairs is not a feasible option. Something will have to be done to avoid an end to economic growth.
Sooner rather than later, members of Congress must finally take a good honest look at the numbers and make a decision rather than just kicking the can down the road. There could be an epidemic of heart attacks in Washington.
David Bond is a retired bank economist who resides in Kelowna.