- The Washington Times - Monday, November 22, 2010


President Obama’s commission for getting America’s fiscal house in order gave its initial report on Nov. 11. The draft’s recommendations propose reducing the deficit by $4 trillion over 10 years, cutting spending by $3 trillion and increasing tax revenue by $1 trillion. In general, it would limit overall federal spending to 22 percent of the U.S. economy, and annual growth of health-related programs (e.g., Medicare, Medicaid) would be indexed to inflation plus 1 percent. Defense is targeted for $100 billion in cuts, and another $100 billion would come out of domestic programs. The objective of paying down U.S. debt is thus spot on, but the commission’s draft fails to control debt realistically and cripples large social-services programs.

Under the draft, debt continues to rise as program costs are permitted to exceed the rate of inflation. Although total federal spending is capped to 22 percent of the economy, the continued rise in program costs will put tremendous pressure on Congress to relieve constituents by raising the legal debt limit. Congress voted 38 times to raise the debt ceiling from 1980 to 2009, increasing U.S. indebtedness from $879 billion to more than $12.4 trillion. Conversely, the draft would unrealistically cut budgets of health, age and income-tested programs without regard to number of enrollees served. For example, Office of Management and Budget (OMB) figures show if the draft were enacted 10 years ago, the 1999 baseline Medicare budget of $190.5 billion would rise to only $270.2 billion by 2009 (indexed to inflation plus 1 percent).

The actual 2009 Medicare budget was $430.1 billion - almost 60 percent higher than what the draft would provide. Those levels of program cuts would cause mass provider exodus from Medicare, which already pays physicians on average of 25 percent less than private insurance plans.

But this is only half the problem. Medicare enrollment figures show in 2009 there were 7.4 million more enrollees than in 1999, rising from 39.1 million to 46.6 million. The draft doesn’t account for this enrollment increase. In today’s dollars, Medicare beneficiaries in 1999 received a per capita program benefit of $6,266 ($245.2 billion to 39.1 million enrollees), but under the draft in 2009 they would receive only $5,804 ($430.1 billion to 46.6 million enrollees). This represents a net 8 percent decline in per capita benefit over 10 years.

Finally, the draft proposes to raise revenue by encouraging business activity through tax reform. The key to raising the tax base, however, is improved employment and U.S. competitiveness in international markets.

Three simple principals should be followed for getting out of debt:

1. Put a hard stop on taking on more debt. Congress may not increase the debt ceiling except by a supermajority three-fourths vote, not a simple majority as is the case today. 2. Establish a budget that is held to the rate of inflation until out of debt. Programs that serve defined populations (e.g., Medicaid, education, Social Security, etc.) are base-lined on a per capita basis. Those that exceed budget are presented to voters as an option to increase taxes to cover costs or pare back benefits. 3. Increase tax base through national investments in high-labor-growth industries. Since 1970, OMB figures show the budget for science and technology has gone down 21 percent in constant dollars and the budget for training, education and employment has increased less than 1 percent a year. It’s time the U.S. gets aggressive on labor growth.



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