Wash­ing­ton has gone nuts; cut costs now

The Washington Times Weekly - - Commentary - Tony Blank­ley

Want to hear a real laugher? De­spite the cur­rent dishar­mony in pol­i­tics, there’s one pol­icy on which all of Wash­ing­ton agrees. Repub­li­cans and Democrats, House and Se­nate, pres­i­dent and Congress all agree that af­ter last fall’s fi­nan­cial cri­sis, the fed­eral gov­ern­ment has to more closely reg­u­late the fi­nan­cial in­dus­try to pro­tect our econ­omy from risk of sys­temic fi­nan­cial col­lapse.

Here’s the joke. As boom-and bust-prone as high fi­nance al­ways has been and re­mains, the great­est sys­temic risk to our econ­omy is not Wall Street. It’s the grow­ing fed­eral debt (and weak­en­ing dol­lar) be­ing en­acted by those Wash­ing­ton politi­cians — the ones who want to pro­tect us from Wall Street.

It soon may be not a risk but a cer­tainty of gen­er­a­tions-long eco­nomic stag­na­tion and hard times as a di­rect re­sult of “un­sus­tain­able” and ever-grow­ing na­tional debt, driven by a fed­eral bud­get al­most half of which is to be paid for each year by bor­row­ing money — pri­mar­ily from China — and al­ready weak­en­ing the dol­lar such that for­eign­ers are try­ing to get rid of them any way they can.

Don’t take my word for it. In June, the Con­gres­sional Bud­get Of­fice pub­lished “The LongTerm Bud­get Out­look,” its first para­graph read­ing in part: “[. . .] the fed­eral bud­get is on an un­sus­tain­able path — mean­ing the fed­eral debt will con­tinue to grow much faster than the econ­omy over the long run [. . .] ris­ing costs for health care and the ag­ing of the U.S. pop­u­la­tion will cause fed­eral spending to in­crease rapidly. [. . .]”

“[. . .] Large bud­get deficits would re­duce na­tional sav­ings, lead­ing to more bor­row­ing from abroad and less do­mes­tic in­vest­ments, which in turn would de­press in­come growth [. . .] the ac­cu­mu­la­tion of debt would se­ri­ously harm the econ­omy. Al­ter­na­tively, if spending grew as pro­jected and taxes were raised in tan­dem, tax rates would have to reach lev­els never seen in the United States [high­est mar­ginal in­come tax rate so far — 94 per­cent in 1944-45]. High tax rates would slow the growth of the econ­omy, mak­ing the spending bur­den harder to bear.”

And yet, the same Congress and pres­i­dent who want to stop the banks from tak­ing too much risk can­not stop them­selves from ever more deficits. In­deed, so in­tox­i­cated — nay, hyp­no­tized! — by debt is the cur­rent gov­ern­ment that it is not even propos­ing to try to cut back.

Two weeks ago we saw, at the same time: 1) the world shud­der­ing about the debt-driven, weak­en­ing dol­lar (“The big­gest story in the world econ­omy is the con­tin­u­ing fall of the U.S. dol­lar, or at least it is ev­ery­where out­side of Wash­ing­ton, D.C., the place most re­spon­si­ble for its de­clin­ing value,” Wall Street Jour­nal) and, 2) Wash­ing­ton cheer­ing Sen. Max Bau­cus’ health bill spending lev­els (“Health Care Bill Gets Green Light in Cost Anal­y­sis,” New York Times)

That’s right. The fed­eral gov­ern­ment is “giv­ing the green light” for the coun­try to drive to the poorhouse. And drive there, I would ar­gue, by way of the lu­natic asy­lum. Are they nuts? Con­sider a few de­tails.

Be­fore the Bau­cus health bill is en­acted, $9.3 tril­lion of newly cre­ated deficit al­ready has been added to the na­tional debt. The Bau­cus bill is con­sid­ered a tri­umph of care­ful bud­get­ing be­cause it may cost just $829 bil­lion — and will not add to that un­sus­tain­able deficit be­cause it is to be paid for by cut­ting Medi­care and other pro­grams about $400 bil­lion and rais­ing taxes pri­mar­ily on health care in­sur­ance by about $400 bil­lion.

Now, for­get for the mo­ment that even the CBO doesn’t be­lieve its own num­bers. (Two weeks ago, CBO Di­rec­tor Dou­glas W. El­men­dorf wrote to Mr. Bau­cus warn­ing “[. . .] longterm bud­getary im­pact could be quite dif­fer­ent if those pro­vi­sions were ul­ti­mately changed.“ That is, CBO must score the cuts called for by the bill. How­ever, Congress in­vari­ably fails to ac­tu­ally im­ple­ment the painful cuts, but it does keep or in­crease the ben­e­fits. That is why en­ti­tle­ment pro­grams al­ways cost much more than is pre­dicted.)

But let’s as­sume the num­bers are real. This is still in­sane. Re­mem­ber, un­til a few months ago, Pres­i­dent Obama in­sisted on pass­ing health care leg­is­la­tion this year (dur­ing the eco­nomic cri­sis we are still suf­fer­ing) be­cause it would lower over­all costs — a nec­es­sary step for a re­turn to a healthy econ­omy.

But nei­ther he nor Congress could de­sign a bill that saved money. So they are set­tling for not adding to the “un­sus­tain­able” cur­rent deficit.

Here’s a thought: As shrink­ing the un­sus­tain­able deficit is a crit­i­cal pre-req­ui­site for a healthy econ­omy, why not just en­act the $400 bil­lion of Medi­care cuts and $400 bil­lion of health in­sur­ance tax in­creases — thereby re­duc­ing the 10-year deficit by about $1 tril­lion (when you count re­duced in­ter­est pay­ments) — but don’t pro­vide the new en­ti­tle­ment ben­e­fits that were the pur­pose of the bill.

Help­ing the unin­sured might be a nice no­tion some day, but the first pri­or­ity now is to avoid per­ma­nently de­stroy­ing our eco­nomic ca­pac­ity — as we are rapidly do­ing — by the in­san­ity of adding to en­ti­tle­ment pro­grams while the dol­lar be­gins to fail and the CBO pre­dicts we will never re­cover from the cur­rent debt and deficit level. So cut the 10-year deficit by that al­most $1 tril­lion.

Then in­cre­men­tally move the el­i­gi­bil­ity age for Medi­care and So­cial Se­cu­rity to 70 by 2030. That would re­duce their costs by about 3 per­cent of gross do­mes­tic prod­uct — which is about what it will take to keep them func­tion­ing without bankrupt­ing Amer­ica. It’s a start.

Stop the mad­ness. Don’t in­crease ben­e­fits; cut costs. Now. It’s doable — ex­cept for the fact that Wash­ing­ton is nuts.

Tony Blank­ley is the au­thor of “Amer­i­can Grit: What It Will Take to Sur­vive and Win in the 21st Cen­tury” and vice pres­i­dent of the Edel­man pub­lic-re­la­tions firm in Wash­ing­ton.

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