Robert Samuelson decries the lack of seriousness in budget proposals in Washington:
We won’t make much progress until (a) Democrats concede that spending control requires genuine cuts in Social Security and Medicare, which now total $1.3 trillion annually and represent 35 percent of federal outlays; and (b) Republicans acknowledge that, even after significant spending cuts, tax increases will be needed to balance the budget. Last week, there was little sign of either. President Obama rebuffed Social Security and Medicare cuts. Most Republicans held fast on taxes.
What we have instead is a public relations war. Both parties propound brands of wishful thinking designed to make it seem that they’re accomplishing more than they are.
and the Wall Street Journal illustrates why we won’t be able to fill the hole created by excessive spending solely by taxing “the rich”, however defined:
The top 1% of taxpayers—those with salaries, dividends and capital gains roughly above about $380,000—paid 38% of taxes. But assume that tax policy confiscated all the taxable income of all the “millionaires and billionaires” Mr. Obama singled out. That yields merely about $938 billion, which is sand on the beach amid the $4 trillion White House budget, a $1.65 trillion deficit, and spending at 25% as a share of the economy, a post-World War II record.
Say we take it up to the top 10%, or everyone with income over $114,000, including joint filers. That’s five times Mr. Obama’s 2% promise. The IRS data are broken down at $100,000, yet taxing all income above that level throws up only $3.4 trillion. And remember, the top 10% already pay 69% of all total income taxes, while the top 5% pay more than all of the other 95%.
We recognize that 2008 was a bad year for the economy and thus for tax receipts, as payments by the rich fell along with their income. So let’s perform the same exercise in 2005, a boom year and among the best ever for federal revenue. (Ahem, 2005 comes after the Bush tax cuts that Mr. Obama holds responsible for all the world’s problems.)
In 2005 the top 5% earned over $145,000. If you took all the income of people over $200,000, it would yield about $1.89 trillion, enough revenue to cover the 2012 bill for Medicare, Medicaid and Social Security—but not the same bill in 2016, as the costs of those entitlements are expected to grow rapidly. The rich, in short, aren’t nearly rich enough to finance Mr. Obama’s entitlement state ambitions—even before his health-care plan kicks in.
Both political parties are either posturing or wrong in their prescriptions for the federal budget. While Mr. Ryan’s budget proposal, recently passed by the House of Representatives, solves Washington’s problems, it does so by offloading it onto seniors and, ultimately, onto state and local governments. While it may be arithmetically possible for people to save enough in their primes to live decently in their dotage it is neither practically possible nor economically desireable. It would mean that they would consume too little to produce healthy economic growth. I want to remind Mr. Ryan and the Republicans in Congress that the reason that Medicare was passed in the first place is that without it the problem of poverty among the elderly, a problem that falls on state and local governments, is severe.
President Obama and the Democrats are wrong, too. Raising taxes and cutting defense to the level that would be needed to pay for the programs they want would cripple the economy and be strategically risky.
We can’t wait for a great and statesmanlike legislator to come along. We’ve got to make do with the poor saps (the original draft of this post used stronger language) we’ve got. As the old Magic 8 Ball used to put it, outlook not so good.
Dave,
Another good post. I would add that I’m increasing seeing this in terms of a generational conflict. Your criticism of the Ryan plan is on target, but there’s more to it than that – since the Boomers will be locked-in to the existing Medicare system, later generations will not only have to save more for themselves to cover shortfalls in the Ryan plan, but will also be paying for the Boomer’s medicare at the same time. The problem is, I don’t see many alternatives and I think Gen X, Y and probably Z are going to get screwed with what amounts to paying double whether it’s the Ryan plan or something else. The boomers will get their medicare no matter what it costs – they have the political muscle to ensure that – the question is how can the post-boomer generations pay for that and save as well. No easy solutions I’m afraid and it’s only going to get worse since health-care cost growth isn’t going down anytime soon.
The solutions that work will have to be implemented in the broader culture rather than solely through policy.
The days of seniors living on their own and apart from their adult children are going to have to end, for most seniors. It takes less money to support a senior when they are living with their children than when they are living independently and I’m not just referring to SS checks being used for paying for rent/mortgage, utilities, taxes, etc but also for nurses who come by on home visits to see how the infirm are doing in their home and other forms of community support.
The old adage of the best retirement program being having lots of children is going to be ringing more true in the coming years.
Loss of liberty, loss of mobility, and for women, more eldercare will reduce their own career opportunities. Freedom and liberty bought on other people’s dimes are not sustainable in our society.
Then there is the issue of immigrants, and even citizens, who don’t pull their weight. For some the solution is simple – deport those who don’t have a legal right to stay in the US. For others the solutions are more difficult to craft but necessity is often the mother of invention. For some the financial calculation is easy – the expected lifetime benefits exceed the expected lifetime revenue or expected lifetime economic contribution, so as with employee buy-outs, there will be a threshold at which citizenship buy-outs would make sense. Here’s a lump-sum of $80,000 if you go and live in Mexico or Morocco or where ever. The lifestyle that can be purchased in a 3rd world country would be greater than the lifestyle one is living in the US.
At the most fundamental level, way before we get to tax policy, the prosperity of a nation is dependent on the productivity of its people and the higher we can raise the mean level of productivity and the smaller we can make variance on the left side of the curve, the more prosperous the nation can become. We’re not really paying sufficient attention to this dynamic.
As for the tax increases that many want to accompany the spending reductions, OK, I’ll go along with that, not because it’s good policy (Hauser’s Law) but for symbolism – there has to be sacrifice on both sides even though raising taxes will simply reduce economic growth and not raise additional revenue, I think we’ll just have to accept that the symbolism of sticking it to the rich people is what many on the left really get jazzed about and that’s the price that needs to be paid in order to reduce out of control spending.