Thursday, December 29, 2005

Good Idea, Right Action

I'm glad that contributors to this site agree that Washington's recent spending binge is totally inappropriate. Reductions in spending are the *only* way to bring outlays in line with revenue and principled leader have to step up to the plate. Furthermore, it's not okay to use emergency spending as an excuse to not account for budget items. There will always be emergencies that Congress feels pressured to address; funding for these adventures should be clearly represented in public reports, not excluded from calculations about the deficit and the public debt. Republicans have been too afraid to stand up to Democrats on spending and they'll pay for it at midterm elections if things aren't reversed next year.

However, I want to make it clear that the bills that were passed, while not even coming close to making a differnece, started in the right direction. As the graphs off to the right exhibit, defense spending is not what we need to worry about at all.

Lyndon "BJ" Johnson certainly blew it when he came up with the Great Soceity programs. Federal spending for entitlement programs like Medicaid, Medicare, and welfare is automatic, increased by a formula that has been growing an order of magnitude faster than inflation and outpacing even our robust economic growth. Each year, more and more of federal government revenues are used to fund these massive programs; Social Security, Medicare and Mediciad accounted for *half* of all federal spending this year, to the tune of over $1 trillion. The scary thing is, the burden is growing and Democrats have blocked any and every attempt to deal with it.

I'm honestly not sure if liberals simply don't understand the basic concepts of economics and fiscal policy or if they deliberately want to make the country less competitive. Higher taxes are an option, but it is clear that the tax reductions of 2001 and 2003 set us on a path to receive higher tax revenue. Eastern European countries that have adopted a flat tax, reducing their highest marginal rates by over 50% in some cases, have ended up collecting *more* revenue. Republicans insistance on no new tax hikes is not a gift to poitical contributors, they simply listen to economists when there is such broad agreement that heavy (35% as proposed by Democrats) taxes on capital are destructive.

Spending does need to be brought into line with revenues, however. So what do economists say should be cut? Surprise, surprise...the items that cost the most money!

The puny deficit-reduction package passed by Congress will not putus into black ink. It will not cut any programs. It will simply limit the anticipated growth of entitlement programs. The cuts are one qaurter of 1% of the expected expenses form these prgrams over the next five years; democrats were unwilling to negotiate at all and this is the best package Republicans could come up with. The cuts to Medicare will extend the period that people have to shed assets, preventing rich beneficiaries from simply ceding their estates to family before they have th state pick up all their medical costs. Student loans are a joke: if you want to know why tuition is rising, it corresponds amazingly with increases in gov't aid. Just like most farm aid goes to inflate the price of farm real estate, more generous student loans simply drive up the price of college education.

There were plenty of chances to help choose which programs to cut, and the bill was revised in committees and conference several times. The democrats never issued a single suggestion because they fundamentally believe the federal gov't should always pay more, but it's ludicrous to say that Medicare is fine just the way it is when the Center for Medicare and Medicaid Services estimates that 10-20% of funding is wasted on fraudulaent payments. Hmmm.....that kinda makes a quater-percent over five year cut look insignificant, doesn't it?

Defense spending isn't the problem, and Dod cuts won;t bring us into fiscal sanity. Republicans need to get serious about the budget in '06 and voters need to show that they care for Congress to take action on bringing spending in line with revenue. If this were a provate company, the leades would be in jail. But alas, Ted Kennedy and Harry Reid think they;re above the law.

Check it out yourself with the Congressional Budget Office.


radar said...

The thing that really beefs me is the Democrats' idea that a reduction in the amount of increase is actually a "cut." Spending on these entitlement programs need to be "cut" and that does not mean "cutting" from an 8% increase to a 6% increase...

Clint said...

I agree with your argument that we will need to cut spending on entitlement programs in the coming years, but was merely pointing out below what a waste much of our defense spending is. The DoD makes up a HUGE part of our annual budget, and defense contractors are essentially fleecing the gov't out of billions by selling them products they don't need. Instead of cutting planned increases in education/student loans, which can provide real growth to an economy, Congress has chosen to provide false growth for the economy through "war industries".

slowpitch said...

Instead of causing unnecessary inflaion in the cost of education, I think the federal government should decide to stop raiding social security and pay down the debt.