- 401 (K) 2013
- The lack of money is the root of all evil.
I’ll bet the federal budget isn’t your favorite thing to read about. It’s not my favorite thing to write about, either.
But a government shutdown is closing in on us, and we have menacing long-term money problems as well. The budget is our most pressing domestic issue right now, and we all want to be responsible citizens. So let’s grit our teeth and think about this, especially because there is a solution.
I’ve stolen the remedy from a report published yesterday by the Congressional Budget Office. The Congressional Budget Office is nonpartisan, and it’s reputable, even though it has the word “Congress” in it.
First, the good news: The deficit is in remission. The CBO says it’s the smallest it’s been since 2008, and that under the current taxing and spending policies, it will continue to shrink the next couple of years.
But, the bad news: Beginning in about 2016, the debt will start growing again. The culprits are rising interest rates, Medicare, Medicaid, and Social Security. And the aging of Baby Boomers like me. Americans will spend more and more on entitlement programs—and on interest as the debt grows—and less on everything else: schools, parks, research, defense, the environment, and programs that could significantly help the poor, such as early childhood education.
At some point, the growing debt will cause investors to doubt our ability or willingness to pay back what we borrow, making borrowing more expensive. We’ll have less flexibility to respond to an unexpected economic downturn, and the risk of a fiscal crisis will rise.
The CBO acknowledges that its projections are far from certain. They don’t account for possibilities such as an economic depression, a major war, or unexpected changes in birth rates, life expectancy, or immigration. But “under a wide range of possible assumptions” the budget “is on an unsustainable path,” the CBO says.
What to do about it? According to the CBO:
To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies—letting revenues rise more than they would under current law, reducing spending for large benefit programs below the projected levels, or adopting some combination of those approaches.
The solution, in a nutshell: tax increases and entitlement cuts, in “some combination”.
Such reforms would have to be phased in, because the CBO says that if we raise taxes or cut spending too quickly, it will harm the economy’s current expansion, and people won’t have time to plan for and adjust to the changes.
They’d have to be phased in for political reasons as well, of course. Elected officials, and those who are electing them, are mostly opposed to tax increases and entitlement cuts.
But as the CBO points out, the longer we wait to act, the harder it will be to right the ship later.
The report makes clear that cuts to discretionary programs—the kind that Republicans have insisted on—do little to solve the long-term problem.
It also makes clear that the growing spending on Medicare, Medicaid, and Social Security crowds out spending on everything else, and will continue to do so.
I wrote recently that as we approach the 50th anniversary of Lyndon Johnson declaring a War on Poverty, we need a new one, and that this time the battle needs to be sustained. We know how to dramatically reduce poverty; we’ve simply been unwilling to spend what it takes to do so. Or we say the money just isn’t there.
We ought to protect Medicaid, which provides health care for the poor. But until we agree on reductions to Medicare and Social Security—and to tax increases—we’ll continue to be unwilling to respond to a host of social problems, especially those afflicting the have-nots of our nation.