Sunday, October 03, 2010

What Would You Cut?

I had to post this in its entirety. This should be required reading of every American citizen, especially the teabaggers who are so uninformed.

Look twice at media spin on causes of deficit
By Marshall Helmberger

The American people are being sold another fraud.

You’ve heard the outline of the story countless times, from virtually every major commentator or political pundit on television, and in newspaper editorials and op-eds.

The U.S. faces a massive debt crisis and it will take entitlement reform (read: major Social Security cuts) if this country has any hope of getting its fiscal house in order.

There is no doubt that the country is deeply in debt. But to understand why, you first need to understand the problem.

The first thing to realize is that the Social Security is very healthy financially, taking in about $100 billion a year more than it pays out. While tax payments dipped in the past year because of the deep recession, that is a temporary situation. In addition to payroll taxes, the Social Security system receives more than $100 billion a year in interest on its accumulated $2.5 trillion in treasury bonds, which further enhances its fiscal stability.

While the retiring of the baby boom will put strain on the Social Security system, the latest report from the board of trustees indicates that the system has sufficient assets to continue to pay full benefits for at least the next 25 years even if nothing is done to increase revenues or decrease expenditures. And even very modest adjustments to benefits or the payroll tax are sufficient to extend the system’s financial viability through 2075.

Simply put, Social Security is almost certainly one of the most well-funded retirement systems in the country.

As for the rest of the federal budget, the situation is actually much worse than people realize. If you exclude Social Security and Medicare hospitalization, which have an independent funding system (primarily the payroll tax and Medicare premiums), the federal government spent about $2.3 trillion last year.

At the same time, it collected about $1.2 trillion in taxes, about three-quarters of it from the federal income tax. The rest comes from corporate income taxes, excises taxes, and various fees.

For the federal government to balance its books, the government either has to:

‰ Cut spending by approximately 50 percent over 2009 levels.

‰ Raise taxes by approximately $1 trillion a year, or

‰ A combination of the two.

To hear the Tea Party crew, that so dominates the media right now, the answer is to cut spending. But a quick look at the current expenses suggests just how difficult it will be to close the deficit solely through cuts.

Of the $1.2 trillion we collected in taxes (excluding Social Security and Medicare) in 2009, about $800 billion went to the Pentagon bureaucracy and to pay for the operation of ongoing wars. About $187 billion went to pay the interest on the national debt. The nation’s two major spy agencies are believed to spend about $200 billion between them, so if we leave this vast national security system in place, and continue to pay the interest on our debt, everything else in the federal government would have to go.

That means federal highway funding will no longer be available, so don’t worry about potholes, because we’ll be driving on gravel before you know it. Federal funding to states and local governments would be wiped out, as would federal funding for schools. Our national parks would be closed, as would every federal agency, including the federal court system and federal law enforcement. Food safety inspections would end, as would workplace safety oversight, port inspections, and all other federal regulation of business. Veterans’ hospitals would close and Medicaid funding would end, and since most Medicaid dollars go to pay the cost of nursing home care for the elderly, that means grandma’s coming for an extended visit.

Even if we were to cut the Pentagon and spy agencies by 50 percent (and good luck selling that in Congress right now), finding sufficient cuts to balance the budget would be virtually impossible. The economic impact of such a retrenchment would be incredible, resulting in the loss of millions of jobs across the country, including not just federal workers, but many state and local workers, teachers, and all those in the private sector who provide goods and services to the government.

All of this is intended to clarify a couple of key points. One is that politicians who oppose tax increases, while simultaneously decrying the deficit, are either out-of-touch with reality, or think the public is stupid.

Solving the budget problem will require new taxes and some painful cuts. That’s a fact. The only question is who will bear the burden, and which politicians are willing to tell us the truth.

The view of most Americans is that those who have so benefitted from the economic changes that have punished the average American family should start to pay their fair share. Allowing the Bush tax cuts for the wealthy to expire would be one way to start moving in that direction.

Unfortunately, it’s the wealthy who control the media and set the political agenda in this country, and that’s why cuts in things like Social Security and other “entitlements” are being portrayed as the only solution to the problem. If they can convince the American people that it is Social Security and Medicare (which are primarily funded by, and benefit, those with modest means) that are behind our growing debt problem, they can justify raising payroll taxes and premiums, cutting benefits, or both.

If so, they can continue to use surpluses in Social Security and Medicare to fund the operation of the government, as they do today, and head off more significant tax increases for the wealthiest Americans.

It’s routine bait and switch, and you’re going to hear a lot of it in the next few months in advance of the report from President Obama’s deficit commission. When you do, just keep in mind that Social Security and Medicare have their own funding systems, which are working well and will continue to work well for the foreseeable future.

Social Security and Medicare are in surplus. It’s the rest of the federal budget that’s deep in the red. And we don’t have to destroy Social Security in order to save it.

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