Wednesday, January 23, 2013

A Liberal Contemplating the National Debt and Spending

In the coming months, it is clear that we will have a big debate about government spending and the debt.

And while I have often debated Republicans who advocate deep cuts in spending on various social or entitlement programs, these Republicans do have a point. And it's a point that we on the left made not too many years ago (during the Bush years.) We can't continue to run trillion dollar deficits and continue ignoring the pending storm clouds like the proverbial grasshopper. The winter of unsustainable debt, along with the crushing austerity that it will bring, isn't that far off. And to be honest, in everything from insisting on the Bush tax cuts remaining in place for the middle class to hardly even mentioning spending, I can see where the Obama administration is still fiddling when in fact we should all be working together like the ants to identify what we can to do bring the budget into balance again. We can make the debt if not vanish, at least become manageable, but not by just ignoring it. Granted, the periodic GOP gambit of threatening to default on the debt and not pay our bills would be a disaster if it happened and won't solve anything, but nevertheless they do have a point about the failure to address the debt and should be given credit for insisting that we pay attention to it.

In fact, we are fortunate that right now (partly because the economy has been so lousy for the past five years) interest rates are at historic lows and have been there for a long time. That means that the interest we pay just to service the debt is also very low. Imagine when interest rates go back up-- we could be paying a substantial portion of our tax not to actually do anything or benefit anybody, except to pay those who hold our I.O.U.'s for continuing to hold them.

My main areas of disagreement with the right have focused on two areas: 1. their insistence that the deficit is a function of spending alone (while conspicuously ignoring revenue,) and 2. that we must balance the budget on the backs of Social Security, Medicare and Medicaid, along with other government services that benefit working people.

The revenue area is one that was somewhat addressed by the recent 'fiscal cliff' agreement but still should have been addressed farther. The right tends to focus only one side of the budget. But in fact a budget has two sides: what you take in and what you pay out. When you spend more than you make, you run a deficit. In that case, it is necessary to look both at how to cut spending and also if there are feasible ways to increase revenue. For example, when our household ran a deficit (in fact we ended up losing a home to foreclosure during the housing crisis a few years ago) we did cut back on our spending, but I also took a second job early in the morning that brings in some extra income. Both of those things were part of the equation towards fixing our household budget. But to rule out earning extra income would have made no sense then, and we ended up making extra income instead. That said, the 'fiscal cliff' tax deal allowed only the taxes on the wealthy to revert to the Clinton rates, but kept the 'middle class tax cuts' intact (except for the payroll tax cut that was implemented under Obama, and which I thought was a mistake then and am glad that it is gone.) I am a middle class taxpayer. And in fact, I enjoy, for example, my expanded child tax credit every year. BUT-- I'd frankly rather have gone back to the Clinton tax rates now than have less Social Security available when I retire. The deal we got is expected to raise $600 billion in revenue over the next ten years. Granted, it's better to have $600 billion if the goal is to bring down the deficit than not to have it, but the truth is that repealing ALL of the Bush tax cuts would have raised four trillion dollars in revenue over the next decade. Getting 15% of the revenue that would have happened if we did nothing convinces me that to a degree, the administration doesn't take the deficit as a whole seriously enough.

Of course even if we did have $4 trillion in new revenue, that would only be enough to pay a quarter of the existing debt, not to mention any more deficit spending going forward if nothing is done on the spending side. So in other words, while revenue is part of the equation (and I refuse to even debate anyone who is so ideological that they ignore it completely) it is the lesser part of the equation. Even though most of the recent deficit spending can be justified, the money was still spent. For example, while we may not like TARP and the auto bailout or the Stimulus, those things did rescue an economy that was headed straight to Hades and bring it back to at least a slow rate of growth. But like an emergency loan to repair a vehicle that is needed to drive to work or to pay for a necessary medical procedure, once that is done the loan is still there and must be repaid. Other recent spending was probably less necessary (for example we wasted a trillion dollars to install a government in Iraq that is more friendly to Iran than it is to the U.S.) but that too, was charged to the national credit card and must be repaid. And beyond that, the driver for spending going forward is not one time spending like the Iraq war and the Stimulus, but rather ongoing expenditures in which the budget is just too large to support with what we are bringing in.

When we do discuss spending cuts, we on the left love to point to two areas: the War budget (known officially as the 'Defense' budget, although the United States hasn't been attacked by a foreign power on our soil since World War II, and not seriously threated by a foreign invasion since the War of 1812); and corporate welfare (a catch-all phrase that includes tax breaks to industries or specific corporations, direct payouts or subsidies, and contracts frequently championed by lobbyists that often pay corporations to do work that is less important to the people that the work is supposed to benefit than it is to the corporation's bottom line.)

And there is certainly ample room to cut in both of these areas. Perhaps nothing better exemplifies both than spending that Congress, under the influence of defense industry lobbyists, has appropriated for weapons systems that even the Pentagon has said they don't need, don't want and have no use for. Examples include the continued production of M-1 Abrams tanks, despite the fact that the army already has six hundred of them and says that is more than enough, the continued production and use of the C-27J Spartan transport aircraft, despite the fact that it has been rendered obsolete by the C-130 and the Pentagon wants to retire those still in operation (and certainly does not want any more,) and perhaps the poster child for this kind of thing, the F-35 fighter jet, an expensive boondoggle that has already been overbudget by billions of dollars (partly because it was rushed into production at the behest of lobbyists working for Lockheed before the prototypes had been fully tested) but now has literally become 'impossible to kill,' with accessories like an extra engine costing billions of dollars that the Marines (who would be operating the jet!-- when did Marines fly jets?) have said they have no use for. Rep. Tom Rooney (R-FL) deserves some credit here, for doggedly trying to get the funding for the extra engine out of the defense bill, but somehow it is never put to rest and keeps threating to come back.

HERE'S AN IDEA: What if the Joint Chiefs of Staff had something like a 'line-item veto' for the defense budget? If they found an item they just didn't want tucked in there, they could line item it out, with 50% of the money saved going back to the U.S. Treasury and the other 50% we would allow them to transfer to other parts of their budget as they saw a need. I'm sure the defense industry lobbyists would still make their case but since the Joint Chiefs are not elected they don't have to worry about which congressional district it's made in, or about campaign donations from defense contractors.

Beyond that, the United States spends over $700 billion per year on 'Defense,' which is five times what China spends, ten times what Russia spends and in fact more than China, Russia and the next ten nations after them(most of whom are our allies) all combined. As we've seen in Iraq and Afghanistan, just throwing money at the problem doesn't win wars anyway (I don't know what the defense budget for the Taliban is, but I'm sure it wouldn't be enough to afford even a single F-35 fighter.) The truth is, we could cut our defense budget fully in half and still spend more than twice as much as China and way more than anybody else. Even if you don't like that idea, the truth is that there is plenty of room to cut out a lot of the expensive military hardware we have stockpiled. Part of the problem is that in fact we do spend a lot of it to 'maintain a presence overseas.' Why? Why should the U.S. be jumping in and trying to solve everyone else's problems? Unless it is a matter of American national security, there is no reason for us to be deployed all over the world-- or more bluntly, to spend what it takes to be deployed all over the world. We can't afford it anymore.

Corporate welfare is not limited to Defense contractors, of course. Healthy industries like big agribusiness, the oil industry and the pharmaceutical industry are the beneficiaries of billions of dollars in government subsidies, tax breaks and special deals. They all employ lobbyists on K Street who make sure that those breaks and subsidies continue in any new bill, and perhaps even grow or multiply. I could give a long list of such breaks, but let's focus on one in particular: Medicare was actually solvent until the 2004 prescription drug bill. As I wrote at the time, the bill actually made it harder, not easier for a lot of seniors to get their medication, but beyond that it increased the cost to Medicare by $400 billion over the last decade but is projected to increase the cost by $1.5 to $2 trillion over this coming decade. While ostensibly this is going to help seniors pay for drugs, in fact most of it is a subsidy to the pharmaceutical industry. This does NOT decrease the cost of drugs, folks! The subsidy is supposed to hold the price of drugs down, but in fact the pharmaceutical companies are allowed to selectively gouge Americans and charge us higher prices (whether we pay or the government pays through Medicare, Medicaid or some other program) than the price of the SAME DRUG, from the SAME FACTORY in any other country! And not by a little either, but SEVERAL TIMES MORE!! That is because tucked into the prescription drug bill was a provision making it much more difficult for Americans to reimport prescription drugs from Canada or elsewhere. I do know people who do, in fact, go to Mexico to buy prescription drugs and pay a fraction of the cost (even though their insurance won't pay for it there) that they pay in the U.S. for the same unopened container that they would buy in the U.S., but the prescription drug bill prevents Medicare from negotiation of prices with suppliers as the governments in other countries do. This is truly corporate welfare at its worst: hundreds of billions of dollars in subsidies on one hand to a very profitable industry to supposedly make their products cheaper, but in fact they turn around and price-gouge with the other hand, and our government BY LAW lets them do it! And don't tell me that the pharmaceutical companies are selling at a loss in Canada and Europe and everyplace else either. They aren't, or they wouldn't be selling there at all. They are just raking it in here from both customers and the government, because the bill that allowed them to do it was written on K Street by their own lobbyists.

WHAT WE SHOULD DO ABOUT IT: First, we should immediately re-open the prescription drug bill and allow Medicare to negotiate prices with pharmaceutical manufacturers. Also pare down or eliminate the subsidies. If we need to reign in the long term growth of spending of Medicare (and we do) this is where we should begin. And then after that, take a similar look at subsidies and special tax breaks that benefit agribusiness, the energy industry (both green energy AND big oil,) banking, and yes, those subsidies that we have heard kicked around for years that pay companies to move jobs offshore. If it can't be justified get rid of it. And just to make sure, don't trust Congress to do it-- they are too mesmerized by lobbyists. Create something like BRAC, except for corporate welfare that would have the ability to get rid of this stuff.

OK, so right about now I sound like the typical liberal. I've talked about raising taxes, and I've talked about cutting defense and corporate welfare. And we do need to look at those things, but our deficit is so massive that we can't get rid of it only by raisng taxes and cutting things I want to see cut. What else?

Well, let's be honest here. So-called 'entitlements; have grown pretty much unrestrained for decades. They aren't really 'entitlements' because they have been earned-- people paid into Social Security and Medicare for their whole lives, with the promise that it would be there. I have. I'm fifty, and got my first job when I was 16. And I expect Social Security and Medicare to be there when I'm old enough. However, as we can see from the travails of state pension plans, you can't expect to put tens thousands of dollars into a plan and take hundreds of thousands out unless 1) you do fully fund the plan every year (one reason I was frankly unhappy with the payroll tax cut and am glad it was allowed to expire) and 2) you either get a very good return rate on your investments or you have some mechanism for slowing down the rate of growth of expenditures.

Since we already began discussing Medicare under the paragraph on corporate welfare and the pharmaceutical industry, let's talk some more about it. To begin with, Obamacare does not take money out of Medicare. What it does is slow the growth of Medicare by $750 billion over the next ten years. The same $750 billion was in Paul Ryan's budget. Instead of scaring seniors about it, explain that all it does is hold down growth. This is a good thing, but it is insufficient (even if we also rewrote the drug bill into something sane.) Other fixes include getting rid of the cap on income subject to the payroll tax (also applies to Social Security,) cutting payments to providers, means testing for wealthier enrollees and increasing the eligibility age to 67. Personally, I don't have a problem with increasing the cap on income subject to the payroll tax from its present $119,000 since even if we do the payroll tax is still a flat tax (shouldn't conservatives love a flat tax?) However, while under this scenario everyone would still be eligible to receive Medicare, under means-testing, whereby wealthier retirees would received reduced or no benefits on the theory that they could pay their own bills, we have an inherent contradiction. Paying taxes for something we may not use is normal (for example, I pay tax to support the Child Support Enforcement division even though I personally don't get child support.) However, if we raise or eliminate the payroll tax cap, then it is doubling up on the same group of taxpayers if we also go to means testing (yeah, I know-- 'soak the rich' is popular, but can we honestly say it would be fair to raise a tax that is dedicated to paying for a benefit that right now everyone can get, and then turn around and tell them that by the way, they won't qualify for the benefit either? EITHER raising the tax cap OR means-testing is probably on the table but even I would be very much against doing both, as a matter of fundamental fairness. Cutting payments to providers is already in Medicare laws. We haven't been following through on it (i.e. we suspend the rule by passing the so-called 'doc fix' every year.) The concern is that if doctors and hospitals are underpaid then quality will suffer, or perhaps they will get out of the business altogether. There is, however, an easy fix to this which we should be consdering. Living in a rural area, I can see that there is a severe shortage of doctors. So why now go to more of a system of physician assistants, nurses and local clinics (as opposed to hospitals) that can offer medical care for all but the most complex of conditions? To some degree, that is happening now. But accelerate this change. Empower P.A.'s and nurses to do more, pay them accordingly (though probably less than the full price a doctor gets today from Medicare) and the same with smaller, more localized clinics. Train more P.A.'s. This will help bring the overall cost of healthcare down, so that maybe the 'doc fix' won't be needed. FURTHER let's not forget that the reason it is necessary now is because of the number of uninsured patients who show up in emergency rooms and then can't pay. As Obamacare kicks in (whether you like Obamacare or not, this will be true) there will be fewer uninsured people so providers won't get stuck with not getting paid as often. This again will cut costs, making a Medicare payment that keeps to the present schedule more feasible. Maybe the 'doc fix' could be phased out over time. One other proposal that has been raised for Medicare: raising the eligibility age to 67. The logic here is that the retirement age for full Social Security benefits is being raised to 67, so why not do the same with Medicare? There is a good reason why not to, however. Technically this would save the government money because in theory people would pay into the system for two years longer and then draw from the system for two years less. In reality what this means is that the poeple not entering the Medicare pool would be the 65 and 66 year olds, who are relatively the most healthy (meaning the cheapest to cover) so it could drive the cost up for everyone else as the average Medicare patient would require more resources. Conversely, they are generally less healthy than younger workers who are in their private insurance pool, so this could raise insurance premiums for everyone. Not much of a benefit. Further, with the Social Security retirement age going up to 67, many of them will remain working and earning a paycheck (and therefore paying payroll taxes (!!) ) until they reach age 67 anyway.

As mentioned a moment ago, the retirement age for full Social Security benefits was raised from 65 the last time a Social Security reform bill was passed, during the Clinton administration, and will be 67 beginning with my classmates and I, who were born in 1962. The logic here is pretty straightforward: people today live longer than they used to. Many people retire at 65 and live to be 90 or 100 or even older. This means drawing Social Security in some cases for virtually as long as the person paid into it (even though what they paid in is a fraction of what they are drawing.) Clearly this is not sustainable as it is presently structured, especially with a declining pool of younger workers. So some people have proposed revisiting the full retirement age again, possibly raising it 70. I have mixed feelings about that. Today, I am pretty healthy and knowing how long 20 years is, I don't believe I would be unable to work until 70. And if I became unable to work sooner than that, Social Security has a disability benefit that covers people who become sick earlier. However, I am a college professor. Physically, this is an undemanding job. But some people who work hard physical labor, like miners and construction workers, may not have a body that can last until 70. So maybe the answer is to put retirement into a range, say between 67-70, in which it is set to 70, but where people who spend more than 10 years working in certain jobs get a year credit for each 10 years worked at that job. Also,the President (causing great consternation among the AARP, made a concession during the 'fiscal cliff' talks which went nowhere because at the time Boehner was hearing from Republicans that they would refuse to vote for anything that included a tax increase. Obama's concession was not about taxes however, it was about using the so-called 'chained CPI' to calculate cost of living adjustments for Social Security. The regular CPI that is used now is based on comparing the cost of the same exact items month after month. But the chained CPI is adjusted by the rate at which folks quit buying those same items and substitute cheaper ones. For example, when the price of milk gets too high, a certain number of people will stop buying their favorite brand and begin buying the store brand, which is cheaper. The government has a pretty good handle now on how that happens, and the chained CPI takes this into account,so it is a lower rate than the traditional CPI. Doing that alone could over the long term save substantial money on Social Security without actually cutting anybody's benefits.

What about government itself, then? After all, if you ask a conservative they will say that the prime example of too much spending is not any program, but the Federal government itself. The Federal government does contain layers and layers of bureaucracy, often engaging in fights with each other over regulatory ‘turf.’ In fact, turf battles between agencies are often a symptom of too many people trying to do too little work, because if we had the right number of people working on problems then they wouldn’t be trying to get more work. So I would agree that there is some cutting within the Federal government that can be done, but I’d also caution that every agency or department was set up for a reason, and every regulation was similarly written for a reason, so I reject the approach of just naming entire departments that somebody doesn’t like and doing away with it. As one example, the other day someone told me that they think we should do away with the Department of Commerce; but that would include the weather service, which means that nobody would get any tornado warnings. In other words, think these things through instead of just blithely and casually tossing entire departments out. And in fact a lot of regulation is painfully necessary, as we have been learning from the investigation of the Upper Big Branch mine accident, in which the regulations that were supposed to be followed, weren’t. The answer to that is not to do away with regulation so other mines can be just as unsafe.

So what can we do to cut government regulation (which = government spending to enforce?) Well, we have an answer right here in Arizona. Following the giant Rodeo-Chedeski fire on the Mogollon rim in 2002, there was a lot of finger pointing. The timber industry blamed environmentalists for opposing logging that might have created natural breaks in the forest. The environmentalists blamed cattle ranchers for destroying the natural habitat in the forest and fostering erosion along stream beds that helped dry out the soil and eventually the trees. Everybody blamed the government (and with good justification) for decades of mismanagement, especially the policy that was in place for many years of putting all fires out quickly, thereby allowing the growth of thick underbrush that in a healthy forest would be burned out periodically by smaller fires instead of accumulating over decades to help feed a monstrous fire when it happened. But a funny thing came out of that. Stakeholders in the management of the forests, including environmentalists, loggers, ranchers, state, county and local governments and local residents came together in what became known as the Four forest restoration intitative (4FRI for short) and wrote their own rules and regulations for how the forest should be managed. And, it’s worked pretty well. The forest is healthier because of logging which thins, but does not destroy, the forest. And a couple of years ago the program showed its success. The Wallow fire burned even more acres than the Rodeo-Chedeski, but it was much less destructive, largely because of forest thinning that limited how much fuel was available at any one time. So here is what that gives us: Regulation may be necessary, but the success of 4FRI shows that it doesn’t have to be the Federal government writing the regulations. 4FRI has the blessing of the Federal government, even though they are not involved. If representatives from the logging industry and the Sierra club can sit down and write a better set of logging regulations than the Federal government could have come up with, then perhaps the same could be done in other places. In that case we would have regulation but not necessarily regulation written by the Federal Government. If so then that would be one area where the government could be cut.

In any case, the adage about spending our grandchildren's money is correct, and we do have to fix the problem. Divided government necessitates that for it to be fixed anytime soon, both parties will have to put aside ideologically mandated solutions and figure out a path forward together, or we really will be the grasshopper, stuck out in the cold with nothing to eat when winter does arrive.


Carter, J. A. said...

Just keep in mind that if we hadn't killed fifty million Americans under 40 with abortion since Roe versus Wade we would have a whole lot more paying into Social Security and would continue to do so for years into the future.

BeantownBobby said...

Well said,Eli. In my retelling of the Robin Hood saga, Robin's notion of a fairer political system is one where "the Republicans set the tax rates, and Democrats get to spend the money." Maybe we can try that for awhile.

Southern Beale said...

Um, Bobby, not sure how abortion figures into this argument. You could just as easily say those 50 million people wouldn't be paying into Social Security, they'd be drains on the welfare system because the majority of them would have been born into poor, economically stressed families. I mean, please. You could just as easily say if we offered millions of immigrants a pathway to citizenship then THOSE people would be paying into social security instead of living in the shadows. That's the most retarded argument I've ever heard.

But just staying on the topic here, which is the budget deficit: Eli, your entire premise is wrong. Republicans don't care about the budget deficit. Not one bit. Remember Dick Cheney saying "deficits don't matter, Reagan proved it?" The deficit is just a grand excuse to destroy the programs they've always hated.

If Republicans cared about the deficit in any real way they'd have embraced the sequester, with all of its mandatory cuts to defense spending. They wouldn't be trying to rob Social Security to pay for bloated military spending on crackpot Star Wars programs. They wouldn't be tearing their hair out whenever someone wants to shut a military base somewhere.

But no, they don't. And neither do the Democrats. The ugly truth is, nobody REALLY cares about the deficit. Nobody. It's simply a political tool used by both sides to get what they want.

Susan Vento said...

Hi Eli,

I have a quick question regarding your blog. If you could send me an email when you get a chance, I would greatly appreciate it!


Eli Blake said...

I do not have your email address.

Anonymous said...

You need shorter paragraphs.