The Debt is Too Damn High
AP. U.S. History, Period 3
June 10, 2011
America is in the midst of a debt crisis not seen since that 1940s. The national debt is currently at 14.4 trillion dollars, and is nearing the Gross Domestic Product of 14.7 trillion dollars. Without action, there would be no recovery. However, there is more bickering being done in Legislature rather than creating a bipartisan agreement for a budget that would rescue us from this unnecessary hole we dug ourselves into. We cannot sit idle while people of power compromise our generation’s future because of their inability and/or unwillingness to do what is necessary.
One of the biggest issues that must be faced is the Medicare, Medicaid, and Social Security costs. In 2010, the cost of Medicare, Medicaid, Children’s Health Insurance Health Program (CHIP), and Social Security accounted for 41% of the national budget. In contrast, the spending for education is only 3%. Consider that by 2030, the 65 and over population would have doubled. Current entitlement spending is unsustainable, uneconomical, and unfair for future generations.
Of course, politicians are hesitant. They fear that they would receive punishment from their AARP overlords. They know that cutting entitlement spending is critical to America’s hope for a surplus, yet deny that entitlement spending is a big issue. The AARP has them on a short leash.
It’s time for our generation to stand up and remind the politicians that senior Americans are not the only ones they are representing.
Now then, we can move on to the next issue, Defense spending. Defense spending accounts for 20% of the national budget as of 2010. I normally have no qualms about spending for our nation’s security, but when you wage two wars with borrowed money that you have no idea how you would pay for, there is a serious problem. That is exactly what President Bush did. The total cost for the wars in Iraq and Afghanistan totaled $170 billion in 2010. There has to be spending slashes in defense, now that the war in Iraq is over, and we have to limit our responsibilities abroad so that we can fix our own problems back home.
The longer we wait, the dimmer our situation gets. Decisive actions must be made. Because, quite frankly, the debt is too damn high.
The United States’ wallet is hanging precariously over the abyss of bankruptcy. With 14 trillion dollars in debt and rising, rewriting the budget is not a convenience, not a nicety, but a necessity to America’s continued existence. But in order to rewrite the budget, in order to ensure a brighter future to our children, in order to move America into a new era, we must revise many social programs, particularly Medicare.
Medicare is health insurance administered by the United States Department of Health and Human Services, which serves Americans 65 or older, those under 65 with certain disabilities, and people who meet other special criteria. The program was originally enacted as a part of the Social Security Act of 1965 meant to amend previously existing Social Security legislation and was signed into law by President Lyndon B. Johnson. It is funded by payroll taxes paid by the American people (About 2.9%).
Eligibility for Medicare automatically opens for American Citizens or those who have lived legally in the United States for at least 5 years and are 65 or older. Americans under that age limit who qualify for Social Security Disability Insurance (SSDI) are also eligible and those with certain other criteria also qualify. Many Americans happen to be eligible for both Medicare and Medicaid, which makes them “dual eligible.” If they cannot pay the premium for Medicare, they use money they receive from Medicaid to pay.
Medicare operates on four parts, labeled A, B, C, and D. Part A pertains to coverage of hospital costs for stay and other fees. Part B mostly covers insurance for outpatient procedures such as X-Rays, diagnostic tests and other physician services. Part B also covers medical instruments such as wheelchairs, canes and prosthetic devices. Part C is an alternative plan in which those people who qualify to receive both benefits A and B can choose to receive them through another provider organization under Part C. Finally, part D covers medication prescribed by doctors for their patients.
Since the US National Debt is on the verge of going from the “Critical” level to the “Fatal,” spending needs to be reduced greatly, and there’s no better place to start than Medicare – it accounts for about 20% of our budget, or $599,000,000,000, as of 2008. There are a few ways to reform Medicare in order to reduce the nation’s spending obligations, of course paired with cuts to the program. Perhaps the most logical is to raise the age at which a citizen qualifies to receive benefits. In fact, this was how the program was initially designed – the qualifying age was actually higher than the life expectancy of the average American. However, this would have to be done gradually so that it does not cause an uproar with the 65-or-better crowd. Thus, the qualifying age could be raised a few years every decade, or the new qualifying age could be made effective to those born after a certain date. For example, the government could mandate that those born after January 1, 1990 will qualify to receive Medicare benefits after they reach the age of, say, 70. Doing this would significantly decrease the amount of Medicare recipients, and, thus, would reduce the government’s obligations to the program.
Another remedy to the nation’s increasing Medicare obligations is to make the tax that pays for Medicare optional. Granted this would take out just as much revenue as it would recipients, if optional Medicare were supplemented by a revenue-increasing reform, such as an age-raise or a tax increase, then the government would be able to save money and curb the increasing cost of healthcare. The only issue this raises is the case of a person who thinks that they are financially secure and choose not to pay the tax, and then wind up in a situation where they cannot pay for healthcare. In this case, the government would have to (be warned: this next concept is scary) actually hold these citizens accountable for their choice. Chances are, however, that these people would have access to financial or medical help from their families, communities, churches, etc., and would probably be okay in the end.
A third option would be means testing the Medicare recipients. This would indeed raise revenue and reduce the amount of recipients, but it poses many problems. In this system, a citizen would have to be below a certain economic status to qualify for Medicare benefits. In more plain English, the rich would not be allowed benefits and would have to pay into the system anyways. Given that the government already forces the rich (top 1% economically) to pay for 21.5% of all federal and state taxes, it just seems more unfair that they would be forced to pay into a system that they are not allowed to draw out of. Sure, the rich wouldn’t need assistance, but it is still unfair to make someone pay for something and then not give them the option to receive it. However, if there were a cutoff income for which those who are above the line do not pay the tax and do not receive the services provided by Medicare, then the system would be fairer.
So in the end, the most promising solution to the Medicare problem seems to be gradually raising the eligibility limit since it accomplishes the goal of reducing the breadth of Medicare coverage and spending without potentially reducing revenue for the government like the optional tax and without unfairly taxing a small demographic group. What is most imperative is that the United States needs to find a suitable solution to the looming disaster on the horizon. With the estimated 70 million Baby Boomers expected to join a system that was made for a considerably smaller generation, the country will find itself descending into an economic tailspin if this issue is not dealt with in the next few decades.
US Federal Budget Proposal
Ian R and John G
[All figures are in billions of dollars]
|Category||Actual FY2012 Budget||Our Proposal|
|Category||Actual FY2012 Budget||Our Proposal|
|Troubled Asset Relief Program||13||0|
|Other mandatory programs||612||612|
|Category||Actual FY2012 Budget||Our Proposal|
|Individual income taxes||1,141||1,495|
|Corporation income taxes||329||593|
|Social Security payroll taxes||659||659|
|Medicare payroll taxes||201||201|
|Estate and gift taxes||14||14|
|Deposits of earnings, Federal Reserve System||66||66|
|Other miscellaneous receipts||20||20|
Explanation of changes and projection methodologies
- $5.7 billion annually could be saved by restructuring the Department of Defense’s healthcare administration system, according to the GAO.
- According to the GAO, following their specific recommendations for elimination of redundancy, waste, fraud, abuse, and mismanagement in the Executive departments “could result in tens of billions of dollars in annual savings.” Including the GAO’s plan as part of our budget proposal, we cut $10 billion for non-security discretionary spending to reflect such efforts at streamlining government operations.
- We propose raising the eligibility age for Social Security benefits for retired workers and aged widowers to 70. The annual savings in Social Security were calculated by multiplying the number of Social Security beneficiaries of each age under 70 (a total of about 14 million) by the average annual spending per beneficiary for each age group (about $14,000). This resulted in a savings of $195 billion.
- We propose raising the eligibility age for Medicare Parts A & B to 70. The annual savings in Medicare spending were calculated by multiplying the number of Medicare beneficiaries under the age of 70 (about 16 million) by the average annual spending per beneficiary (about $7,400). This resulted in a savings of $121 billion. Unfortunately, the data used in our calculations, the most recent available, was from 2004.
- TARP was intended to avert a collapse of the nation’s financial markets; since that is no longer a threat, continued spending on it is unnecessary.
- Gains achieved by repealing the 2001 and 2003 Bush Tax Cuts and restoring individual income tax rates to their 2000 levels. Taxes brought in revenue amounting to 10.2% of GDP in 2000, so we estimated current tax revenues with 2000 tax rates as 10.2% percent of today’s GDP.
- Corporate profits in 2010 amounted to approximately $1,756 billion. To estimate the gains by raising the effective tax rate to match the statutory tax rate for high-earning corporations, we took 15% of this amount ($264 billion) and added it to the current national corporate tax liability. This is, in all likelihood, a generous underestimation of the statutory tax liability of the nation’s largest corporations.
The United States is currently facing a national debt that is close to equaling our Gross Domestic Product. If our national debt continues to grow at its current astronomical rate, it will someday be untenable. Unfortunately, at the moment, that growth rate shows no sign of slowing. We believe that, ideally, our nation should run a modest annual surplus, so that we can begin to pay off the principal of our debt. To our dismay, it seems that members of Congress from both parties disagree with that belief. They continue to display their customary lack of efficacy in making any meaningful progress towards stabilizing the nation’s financial state. In spite of this, we strove to use our much more limited time and resources to propose changes to the federal budget that would save the country money without harming America’s citizens, and then project the exact effects that those changes would have on the budget.
The above proposed federal budget succeeds in reducing the nation’s annual deficit to only about 12% of what it currently is. It makes deep cuts into Medicare and Social Security and raises taxes substantially to accomplish this. However, we believe these drastic measures, and more, are necessary. Our proposed budget does not succeed in generating a surplus, however, it is our hope that changes we did not specify would be able to close the $137 billion deficit our proposal leaves. We excluded longer-term changes, such as withdrawal of our military forces from Iraq and Afghanistan, which would save hundreds of billions of dollars annually, as well as changes we felt necessary but that we were unable to accurately project the effects of, especially the elimination of inefficient and redundant programs in the civil discretionary spending category.
Data and statistics sources:
White House Office of Management and Budget (whitehouse.gov/omb)
Congressional Budget Office (cbo.gov)
Government Accountability Office (gao.gov)
Social Security Administration (ssa.gov)
US Department of Commerce Bureau of Economic Analysis (bea.gov)
CIA World Factbook (https://www.cia.gov/library/publications/the-world-factbook/