U.S. Can't Avoid The Entitlement Cliff By Raising Taxes

Investor's Business Daily ^ | 12/5/12 | Staff

[jimt]

A new government report finds that the country is heading toward fiscal ruin, and the only way to avoid that is to make deep cuts in entitlement programs; tax hikes can't fix the problem.

In other words, what's needed is the opposite of what the Obama administration and congressional Democrats propose as part of the fiscal cliff talks.

The Government Accountability Office report found that, even using optimistic assumptions about spending, the government is "on an unsustainable long-term fiscal path" that will lead to debt exceeding the economy within a few decades.

The report puts the blame squarely on entitlement programs — Social Security, Medicare, Medicaid and, now, ObamaCare — whose budgets are driven up by an aging population and rising health costs.

Read More At IBD: http://news.investors.com/ibd-editorials/120512-635898-fiscal-ruin-looms-unless-deep-cuts-in-entitlements-are-made....

[CodeToad]

You will get more back by far than what you paid in. That is
Welfare.

[kabar]

I've PAID for Socil Security and Medicare for 45 f'n years.

The problem is that you haven't paid enough for the benefits you receive. Did you know that by law, the premiums you pay for Medicare Parts B and D only pay for 25% of the costs? The rest--75%--comes from the General Fund. In 2011 the GF ponied up $222 billion to pay for Medicare Parts B and D. And the Medicare Trust Fund (Part A) has been running in the red since 2008.

This graph shows that the average man and woman (average defined in the study as average income over their working lives and living to the average life expectancy) who start receiving benefits in 2010 get over 3 times more in benefits than they pay in to the system! Of importance, the study accounts for inflation by calculating all past taxes and future payments in 2010 dollars to provide an accurate comparison.

If the notion that Medicare recipients are simply "getting back what they paid in" is false then where is the money coming from? Simply, the excess received is being borrowed from younger generations and the cost is more than we can bear.

Every time I hear that Social Security and Medicare are "entitlements", listed right along with Medicaid, food stamps, TANF, SSI, ad nauseum, I want to puke.

I want to puke every time I hear someone say they have paid for their Medicare and SS benefits. The Dems have brainwashed the public that somehow these benefits are paid for. Nothing could be further from the truth. These programs are unsustainable and the benefits are being paid for by increasing our debt and borrowing. 42 cents of every federal dollar spent is borrowed, and that includes the so called entitlement programs.

[ecomcon]

What about interest growth over 45 years? Is that included in your chart?

[asinclair]

But, but, but...it's not just "entitlement" spending that is the problem. Its all spending. And I'm not talking about "tax spending", a code word for deductions from taxable income. I'm talking about spending for things that benefit 1,000 people because "the Federal Government has so much money, they can cut loose this small amount for me and mine."

Why do we need Pell grants? Because the cost of receiving a college education keeps rising and rising, to the point that students can't get jobs to cover the costs. Instead, they take on an enormous amount of debt up front, and pay for it the rest of their lives. This is education? Too bad the students don't learn from it.

I'm all for national standards, I push them at every opportunity as a solution to the medical cost crisis. If the Department of Education would stick to just setting standards, to be adopted by the States, that would be a good use of money. All other spending can be cut, and we would be a better country for it.

Ditto the Environmental Protection Agency. Provide guidance to the States, not ram the ideas of 0.001 percent of the population down the throats of everyone else. If the Sierra Club thinks that something is a good idea, let them lobby the 50 legislatures directly. Or the thousands of county legislatures.

What I would love to see is a tax form you file with the IRS, that has major line items of the Budget of the United States listed, with three checkboxes: Approve, Disapprove, Don't-Know. Lazy people can omit the form, and would be counted as "don't-know". The tabulation would provide Congress with *real* input as to "what the people want." But it will never happen.

How about making it part of the 10-year Census poll? Would that be more acceptable to everyone? It wouldn't be as reactive.

Oh, that's right. We don't have an agreed-to budget.

How about making the full United States Budget -- when the President and the Congress get around to it -- available on CD-ROM, to anyone who asks? To reduce the cost, use a government server to host an ISO image, which can be downloaded and burned by interested people onto $0.99 blanks using Windows or Macintosh or Linux. (At the library perhaps, or at Fedex Office.)

Here's an idea: continuing resolutions require a 10-percent spending cut and head-count cut for the departments affected by the continuing resolution. That will put pressure on the President, House, and Senate to create and approve a budget so that appropriations in the form of a continuing resolution can "fully fund" the government. And expose the largess to the public. Especially when published on something more portable than the Greater New York Phone Book.

For the record, "Entitlements" is a term of art in Washington DC, not a judgment on the worthiness of the funds. As other people have pointed out, Social Security was sold as an insurance system, but executed as a Ponzi scheme. You and I "paid" our way in those systems, all our working lives. Ditto Medicare. The idea that people who have never sent a single dollar to Our Capitol are "entitled" to money taken from us at the point of a gun is sad, and not in keeping with our heritage.

I'm not heartless, but I'm a firm believer in the adage "give a person a fish and they eat for a day; teach a person to fish and they eat for years."

Disaster relief: Hurricane Sandy taught me that some people just don't want help, they want help on their terms. Take those electricians who came up from Alabama to help get city people back on the grid as quickly as possible, only to be turned away because they came from a "right to work" state. That tells me that New York City doesn't need help to get back on its feet. New Jersey? If it happened there, then the same to them. I bring this up because disaster relief is another entitlement -- don't want it, don't take it and lump it.

Bank Bailout: I'm also "heartbroken" about the people on Wall Street, who became the new members of the Entitlement Class. So I like the idea of taxing every single financial transaction with a value of $50 or more.

All transactions of $50 or more. Every stock and option trade. Every welfare check. Every payment to a vendor or employee. Every refund. Every rent/lease check. Every bonus check. Every withdrawal from an ATM machine. Every EBT transaction. Every contribution to a political campaign. Every credit card transaction. Payments to your IRA. Even deposits to your Christmas Club account. Anything involving a bank or other financial institution.

This would be a targeted tax, specifically to pay back all the money borrowed by the Federal government. Paying off the credit card, as it were.

This would include all government checks $50 or more, without exception. (Tax on the government? Why not? It's only fair that the departments that are part of the problem become part of the solution. It exposes the volume of payouts for everyone to see.)

What about cash transactions between non-bank people and companies? Exempt. Cash deposits and withdrawals to and/or from a financial institution? Not exempt. Inter-bank loans, and bank/Fed loans? Not exempt. (Think of this fee on bank-to-bank loans as "points" to help pay off the debt.)

My formula would be different, though: five cents per instrument plus 0.01 percent of the money exchanged.

Why the $50 floor? To make the tax progressive, so that children with their nickles and dimes don't see a huge part of their transaction go to the government. Don't like that floor? I'm not married to the amount, just the rationale for having a floor. Besides, think what retailers would do to price things just below the floor to boost volume?

There is a risk. The whole Boston Tea Party was a reaction to the Stamp Tax imposed by England. My proposal could be viewed as a modern version of the Stamp Tax. But then again, we have post-Revolution precedent that this is an acceptable way to dig ourselves out of a fiscal hole. We just have to make damn sure it doesn't become permanent. (It's going to run quite a few years as it is.)

We are entitled to be free of debt imposed by other people. That includes our representatives in Congress and the White House. The proposal by Obama of using just the 1 percent just won't do the job. Everybody has to pitch in. And I do mean everybody.

[kabar]

Interest charges? Do you think that Medicare is an investment? It is insurance. The contributions you provide pays for coverage. SCOTUS has determined that the money doesn't even belong to you. There is no Medicare account with your name on it.

The contributions into the HI Trust Fund (Medicare Part A) does earn interest for Medicare. The HI Trust Fund will cash in all of its non-market, interest bearing T-bills by 2024.

The reality is that Medicare and SS are pay as you go systems. Today's workers pay for today's retirees. They are Ponzi schemes. Medicare and SS represent an unfunded liability of over $60 trillion.

[wita]

An immediate 50 percent cut in every welfare program would be a good start. That includes every program, from food stamps, excuse me SNAP, medicare, medicaid, headstart, SS, and a thousand more I cannot even imagine.

...and from that point begin a percentage reduction, in payments, and taxes, until the government is out of the business and limited to the Constitutional mandates and nothing else.

Perhaps at that time we will have sufficient to take care of a limited number of anchors attempting to still scam the system or through circumstances find themselves wards of the state, but that is a state issue not a federal one.

For certain we have reached the point where if nothing is done to remedy the unconstitutional spending, life is going to get really interesting for all 300 million of us.

[ecomcon]

The contributions into the HI Trust Fund (Medicare Part A) does earn interest for Medicare. The HI Trust Fund will cash in all of its non-market, interest bearing T-bills by 2024.

That's what I was getting at. If it had been run responsibly as an insurance scheme, it might have worked, but Democrats spent it all?

What would one have, had that $55,000 been invested in t-bills over 30 or 40 years? I don't know.

[khelus]

My constant question is why the first thing policitans of both parties want to cut is SS and Military pensions and benefits.

Why does no one mention the hundreds of billion spent annually on illegals, brand new immigrants on the dole, legal immigrants who work at such low salaries that their jobs are subsidized by tax payers, $25,502 million in foreign aid to countries that hate us, eliminating some less than useless cabinet departments (e.g. Energy, HUD, Commerce, Interior, Education), abolishing the Transportation Security Administration, slashing the budgets of the remaining cabinet departments, $ 8 billion per year on communist Chinese students, fixing up Mexican trucks to compete with americans. etc

[kabar]

That's what I was getting at. If it had been run responsibly as an insurance scheme, it might have worked, but Democrats spent it all?

Not really. Even if the trust funds for SS and Medicare contained real assets instead of IOUs in the form of non-market, interest bearing T-bills, it still would not be enough to fund the programs. It is an actuarial problem. The revenue is insufficient to pay the benefits.

In 1950 there were 16 workers for every retiree, today there are 3 and by 2030 there will be two. People are living longer and medical costs are increasing faster than inflation. The premiums are not tied to benefits. And as I mentioned previously, the premiums for Medicare Parts B and D only pay for 25% of the costs, by law. The General Fund must come up with the rest to pay benefits. Hence we have a problem where Medicare will consume the entire federal budget unless it is reformed. It is unsustainable. We spent $222 billion out of the FY 2011 budget (read General Fund) to pay for Medicare Parts B and D. Those costs will continue to go up as 10,000 people a day reach 65 for the next 20 years. By 2030 one out of every 5 people in this country will be 65 or older--twice what it is now.

[kabar]

Good article by Bruce Barlett.

The 81% Tax Increase

As bad as that is, however, Social Security's problems are trivial compared to Medicare's. Its trustees also issued a report this week. On page 69 we see that just part A of that program, which pays for hospital care, has an unfunded liability of $36.4 trillion in perpetuity. The payroll tax rate would have to rise by 6.5% immediately to cover that shortfall or 2.8% of GDP forever. Thus every taxpayer would face a 28% increase in their income taxes if general revenues were used to pay future Medicare part A benefits that have been promised over and above revenues from the Medicare tax.

But this is just the beginning of Medicare's problems, because it also has two other programs: part B, which covers doctor's visits, and part D, which pays for prescription drugs.

The unfunded portion of Medicare part B is already covered by general revenues under current law. The present value of that is $37 trillion or 2.8% of GDP in perpetuity according to the trustees report (p. 111). The unfunded portion of Medicare part D, which was rammed into law by George W. Bush and a Republican Congress in 2003, is also covered by general revenues under current law and has a present value of $15.5 trillion or 1.2% of GDP forever (p. 127).

To summarize, we see that taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.

[justa-hairyape]

They want to destroy the Worlds Reserve Currency. That is their plan for the future. That is their hope and change.

[ecomcon]

I’m speechless at it all. I’m 52 and don’t expect to see a dime in SS. I’m just waiting for it all to fall apart. Default on the whole thing and start over. There’s hell to pay because the people are no good. Something like that.

[Graybeard58]

The only way out is to drastically limit spending, and to do that every entitlement is going to have to be slashed to some degree.

I know it's a pipe dream but cutting off completely such things as food stamps, S.S.I., E.I.T.C.,getting non citizens off every program, would go a long way towards making S.S. solvent. The recipients of many government "gimmes" have never paid a cent for them.

Others, like my father who paid S.S. taxes from its inception until his death in 1974, paid and paid and paid and never received anything. My mother wasn't even eligible for survivors benefits because she made too much money working part time in a school cafeteria, now criminal Mexicans are eligible for a host of programs.

Eliminate the true welfare bums first then talk about S.S. receivers who have worked and paid in all their adult lives.

Like I said - pipe dream, at least in my life time.

[Graybeard58]

Meant to include you in my #33:

I know it's a pipe dream but cutting off completely such things as food stamps, S.S.I., E.I.T.C.,getting non citizens off every program, would go a long way towards making S.S. solvent. The recipients of many government "gimmes" have never paid a cent for them.

Others, like my father who paid S.S. taxes from its inception until his death in 1974, paid and paid and paid and never received anything. My mother wasn't even eligible for survivors benefits because she made too much money working part time in a school cafeteria, now criminal Mexicans are eligible for a host of programs.

Eliminate the true welfare bums first then talk about S.S. receivers who have worked and paid in all their adult lives.

Like I said - pipe dream, at least in my life time.

[Graybeard58]

Did you know that by law, the premiums you pay for Medicare Parts B and D only pay for 25% of the costs?

Probably gonna make you cry some more but my former private employer, which is now my secondary insurer, reimburses me in full for medicare premiums withheld from my S.S. checks.

Their logic, which I do not try to refute is, that since said former employer requires that I have Medicare, they should pay for it, I also do not have part "D" as my secondary insurer (former employer) has a prescription drug plan, the benefits of which, far exceeds part "D".

By the way,(Neither here nor there) I just got a new pair of hearing aids last month, price $8,200, paid in full by my secondary, since medicare pays nothing for hearing aids but they do pay 100%, no co pay, no deductible, for AIDS testing,I guess I got the wrong kind of "aids" gotta take care of those queers ya know. I guess I could sell them and send the proceeds to SS. but I ain't gonna do it, greedy old bastard that I am.

[kabar]

Probably gonna make you cry some more but my former private employer, which is now my secondary insurer, reimburses me in full for medicare premiums withheld from my S.S. checks.

My brother worked for the state of NY. He receives the same deal in retirement. The NY taxpayers essentially pick up the tab for his Medicare premium.

Nothing is free. Someone always gets stuck with the bill. In this case, it is us and our progeny.

[GeronL]

People often get out a lot more than they “paid in”

Guess what, people pay taxes too.... so I guess there is no such thing as an entitlement and wasteful spending at all

we were all worried about nothing

[GeronL]

SS and medicare taxes are taxes, same as the taxes paid into welfare and other entitlements. No difference.

[TurboZamboni]

who's afraid of fiscal Cliff?