Truth to power – The People
The Medicare Monster
An entitlement problem too big to ignore
SEP 26, 2011, VOL. 17, NO. 02 • BY YUVAL LEVIN
The Disaster Ahead
The record deficits of the past few years have largely been a function of an explosion of discretionary spending. But the utterly unprecedented debt disaster we confront in the coming years——the projected ballooning of spending and borrowing that has our creditors nervous and will leave us with a national debt larger than our economy in just a decade and twice as large in the 2030s—is a function of an explosion of health-entitlement costs and especially Medicare costs. The Congressional Budget Office projects that the already immense cost of our health programs will double as a share of the economy by the early 2030s and nearly triple by 2050, while all other federal spending combined (except interest payments) will actually decline as a share of the economy. Health-entitlement costs will thus account for essentially the entirety of our debt explosion, and Medicare will account for the bulk of those costs—as our population ages and the program’s grossly inefficient design pushes health inflation ever upward.
That design is at the heart of our health care crisis too. Today’s “fee-for-service” Medicare pays all doctors and hospitals the same price for a given service—regardless of quality, efficiency, outcome, cost to the provider, or patient satisfaction. Medicare recipients play no part in determining who gets paid and how much, and have no sense of what their care costs. Health care providers have no financial incentive to deliver better care at lower cost since they get paid the same regardless. All this creates an enormous incentive for volume rather than efficiency—which yields massive economic distortions and higher costs. And because Medicare is the largest payer for health care in most parts of the country, its structure defines the entire health care system: Hospitals and doctors shape their accounting and billing (and therefore also their practice of medicine) to suit Medicare’s demands; Medicaid and most private insurers often use Medicare’s payment codes and methods to make things easier on doctors. Medicare shapes how nearly everyone in the American health care system thinks about economics, and it does so in a way that makes very little economic sense—spreading staggering inefficiency throughout the system, and inflating the costs that leave more and more people uninsured.
What’s missing from the Great Budget Debate: seriousness
By Robert J. Samuelson, Sunday, April17, 7:46 PM
In the Great Budget Debate, Democrats and Republicans are closer than you might think. Neither is proposing a balanced budget anytime soon; both peddle soothing myths to convince supporters that they’re upholding either “liberal” or “conservative” values. Meanwhile, the public seems largely clueless about the enormity of the problem. The Congressional Budget Office reckons that, in 2021, even after a full economic recovery, the remaining deficit will equal almost 5 percent of gross domestic product. In today’s dollars, that’s $750 billion. It’s the hole that needs filling.
We won’t make much progress until (a) Democrats concede that spending control requires genuine cuts in Social Security and Medicare, which now total $1.3 trillion annually and represent 35 percent of federal outlays; and (b) Republicans acknowledge that, even after significant spending cuts, tax increases will be needed to balance the budget. Last week, there was little sign of either. President Obama rebuffed Social Security and Medicare cuts. Most Republicans held fast on taxes.
What we have instead is a public relations war. Both parties propound brands of wishful thinking designed to make it seem that they’re accomplishing more than they are.
Start with the Republicans. House Budget Committee Chairman Paul Ryan’s plan fulfills the no-tax-increase requirement. Yet, deficits shrink. How does he do that? Well, he doesn’t touch Social Security, the government’s biggest program with $9.9 trillion of projected spending from 2012 to 2021. He does propose a voucher program for Medicare, but it doesn’t take effect until 2022 and exempts the 77 million Americans now 55 and over. Ryan isn’t picking a fight with seniors.
He achieves big savings by assuming deep cuts to most of the federal government beyond Social Security, Medicare and Medicaid. Ultimately, it would shrink to almost nothing. That’s defense, food stamps, highways, federal courts, basic research . . . and much more. Altogether, these programs constitute about 12 percent of GDP. By 2022, Ryan’s plan would reduce them to 6 percent of GDP; by 2050, they’d be about 3 percent, estimates the CBO. The United States would virtually disarm and dismantle much of the social safety net, and starve important federal responsibilities, from environmental regulation to the FBI. This isn’t likely to happen — and shouldn’t.
Democrats are as bad or worse. Remember that Obama’s original budget for 2012 envisioned deficits of $9.5 trillion over the next decade (2012-2021), according to the CBO. So Obama’s now-promised additional $4 trillion of savings over 12 years — meaning about another $2 trillion of deficits — barely touches the problem. Rhetorically, Democrats finger familiar villains to explain and cure the deficits. These don’t withstand scrutiny.
One is: the Bush tax cuts for the rich. The trouble is that Obama’s budget already assumes higher rates (39.6 percent) on incomes exceeding $200,000 (individuals) and $250,000 (couples). Suppose we get tougher on the very rich. One proposal would raise rates to 45 percent on incomes from $1 million to $10 million, with rates increasing to 49 percent on incomes of $1 billion. Over a decade, tax revenue would grow about $900 billion, says the advocacy group Citizens for Tax Justice. Assuming the money materialized, it’s a lot — but only a tenth of the decade’s deficits.
Another liberal villain: the wars in Iraq and Afghanistan. They’ve cost $1.26 trillion from 2001 to 2011, reckons the CBO. Again, a lot of money. But it, too, pales next to all spending ($29.8 trillion) or deficits ($6.2 trillion) over the same period. Here, too, Obama’s budget already assumes big cuts.
Our budget problem is conceptually simple. Government’s spending commitments, driven by more retirees and uncontrolled health costs, vastly exceed the existing tax base. There is an argument about how fast changes should be made to protect the economic recovery. There should be no argument over the need for changes to prevent a debt crisis: Too many Treasury bonds frighten investors and drive up interest rates.
But it also matters how we do this. By policy and procrastination, both Democrats and Republicans would largely exempt today’s elderly from changes and shift the burden to workers and the young. That’s not “liberal” or “conservative.” It’s expedient — and bad for America’s future. It suggests the young will pay even higher taxes and receive even fewer public services. It will make raising a family harder and possibly deter millions from doing so. It may endanger America’s security by shortsighted military cutbacks.
We still await a serious debate about which programs to cut and which taxes to raise. Congressional Republicans advance a radical plan for shrinking government — and are not candid about it. Obama defends the status quo of ever-bigger government — and is not candid about it. Perhaps these are negotiating positions and, needing to raise the federal debt ceiling, both sides will recognize their shortcomings. It’s a hope.
Big government on the brink
By Robert J. Samuelson, Sunday, April 10, 8:00 PM
We in America have created suicidal government; the threatened federal shutdown and stubborn budget deficits are but symptoms. By suicidal, I mean that government has promised more than it can realistically deliver and, as a result, repeatedly disappoints by providing less than people expect or jeopardizing what they already have. But government can’t easily correct its excesses, because Americans depend on it for so much that any effort to change the status arouses a firestorm of opposition that virtually ensures defeat. Government’s very expansion has brought it into disrepute, paralyzed politics and impeded it from acting in the national interest
Few Americans realize the extent of their dependency. The Census Bureau reports that in 2009 almost half (46.2 percent) of the 300 million Americans received at least one federal benefit: 46.5 million, Social Security; 42.6 million, Medicare; 42.4 million, Medicaid; 36.1 million, food stamps; 3.2 million, veterans’ benefits; 12.4 million, housing subsidies. The census list doesn’t include tax breaks. Counting those, perhaps three-quarters or more of Americans receive some sizable government benefit. For example, about 22 percent of taxpayers benefit from the home mortgage interest deduction and 43 percent from the preferential treatment of employer-provided health insurance, says the nonpartisan Tax Policy Center.
“Once politics was about only a few things; today, it is about nearly everything,” writes the eminent political scientist James Q. Wilson in a recent collection of essays (“American Politics, Then and Now”). The concept of “vital national interest” is stretched. We deploy government casually to satisfy any mass desire, correct any perceived social shortcoming or remedy any market deficiency. What has abetted this political sprawl, notes Wilson, is the rising influence of “action intellectuals” — professors, pundits, “experts” — who provide respectable rationales for various political agendas. ‘
The consequence is political overload: The system can no longer make choices, especially unpleasant choices, for the good of the nation as a whole. Public opinion is hopelessly muddled. Polls by the National Opinion Research Center at the University of Chicago consistently show Americans want more spending for education (74 percent), health care (60 percent), Social Security (57 percent) and, indeed, almost everything. By the same polls, between half and two-thirds of Americans regularly feel their taxes are too high; in 2010, a paltry 2 percent thought them too low. Big budget deficits follow logically; but of course, most Americans want those trimmed, too.
The trouble is that, despite superficial support for “deficit reduction” or “tax reform,” few Americans would surrender their own benefits, subsidies and tax breaks — a precondition for success. As a practical matter, most federal programs and tax breaks fall into one of two categories, each resistant to change.
The first includes big items (Social Security, the mortgage interest deduction) whose benefits are so large that any hint of cuts prompts massive opposition — or its specter. Practical politicians retreat. The second encompasses smaller programs (Amtrak, ethanol subsidies) that, though having a tiny budget effect, inspire fanatical devotion from their supporters. Just recently, for example, the documentary filmmaker Ken Burns defended culture subsidies (“an infinitesimally small fraction of the deficit”) in The Post. Politicians retreat; meager budget gains aren’t worth the disproportionate public vilification.’
Well, if you can’t change big programs or small programs, what can you do? Not much.
If deficits were temporary — they were certainly justified to temper the recession — or small, they would be less worrisome. That was true for many years. No more. An aging population and uncontrolled health costs now create an ongoing and massive mismatch between spending and revenue, even at “full employment.” The great threat is a future debt crisis, with investors balking at buying all the Treasury bonds the government requires to operate. So President Obama and Congress face a dilemma: The more they seek to defuse the economic problem of too much debt, the greater the political risks they assume by cutting spending or raising taxes.
The package to prevent a shutdown barely touches the prevailing stalemate. House Budget Committee Chairman Paul Ryan’s proposed 2012 budget forthrightly addresses health spending but doesn’t make any cuts in Social Security. Ryan’s plan would ultimately gut defense and some valuable domestic programs; it wouldn’t reach balance until about 2040. Compared with Democrats, however, Ryan is a model of intellectual rigor and political courage. Obama would run huge deficits from now to eternity; the Congressional Budget Office has projected about $12 trillion of added debt from 2010 to 2021 under his policies. Obama urges an “adult” conversation and acts like a child, denying the unappealing choices.
Government is suicidal because it breeds expectations that cannot be met. All the partisan skirmishing over who gets credit for averting a shutdown misses the larger issue: whether we can restore government as an instrument of progress or whether it remains — as it is now — a threat.
America’s elites have a duty to the rest of us
By E.J. Dionne Jr., Sunday, April17, 7:45 PM
The American ruling class is failing us — and itself.
At other moments in our history, the informal networks of the wealthy and powerful who often wield at least as much influence as our elected politicians accepted that their good fortune imposed an obligation: to reform and thus preserve the system that allowed them to do so well. They advocated social decency out of self-interest (reasonably fair societies are more stable) but also from an old-fashioned sense of civic duty. “Noblesse oblige” sounds bad until it doesn’t exist anymore.
An enlightened ruling class understands that it can get richer and its riches will be more secure if prosperity is broadly shared, if government is investing in productive projects that lift the whole society and if social mobility allows some circulation of the elites. A ruling class closed to new talent doesn’t remain a ruling class for long.
But a funny thing happened to the American ruling class: It stopped being concerned with the health of society as a whole and became almost entirely obsessed with money.
Oh yes, there are bighearted rich people when it comes to private charity. Heck, David Koch, the now famous libertarian-conservative donor, has been extremely generous to the arts, notably to New York’s Lincoln Center.
Yet when it comes to governing, the ruling class now devotes itself in large part to utterly self-involved lobbying. Its main passion has been to slash taxation on the wealthy, particularly on the financial class that has gained the most over the past 20 years. By winning much lower tax rates on capital gains and dividends, it’s done a heck of a job.
Listen to David Cay Johnston, the author of “Free Lunch” and a columnist for Tax Notes. “The effective rate for the top 400 taxpayers has gone from 30 cents on the dollar in 1993 to 22 cents at the end of the Clinton years to 16.6 cents under Bush,” he said in a telephone interview. “So their effective rate has gone down more than 40 percent.”
He added: “The overarching drive right now is to push the burden of government, of taxes, down the income ladder.”
And you wonder where the deficit came from.
If the ruling class were as worried about the deficit as it claims to be, it would accept that the wealthiest people in society have a duty to pony up more for the very government whose police power and military protect them, their property and their wealth.
The influence of the ruling class comes from its position in the economy and its ability to pay for the politicians’ campaigns. There are not a lot of working-class people at those fundraisers President Obama has been attending lately. And I’d underscore that I am not using the term to argue for a Marxist economy. We need the market. We need incentives. We don’t need our current levels of inequality.
Those at the top of the heap are falling far short of the standards set by American ruling classes of the past. As John Judis, a senior editor at the New Republic, put it in his indispensable 2000 book, The Paradox of American Democracy,” the American establishment has at crucial moments had “an understanding that individual happiness is inextricably linked to social well-being.” What’s most striking now, by contrast, is “the irresponsibility of the nation’s elites.”
Those elites will have no moral standing to argue for higher taxes on middle-income people or cuts in government programs until they acknowledge how much wealthier they have become than the rest of us and how much pressure they have brought over the years to cut their own taxes. Resolving the deficit problem requires the very rich to recognize their obligation to contribute more to a government that, measured against other wealthy nations, is neither investing enough in the future nor doing a very good job of improving the lives and opportunities of the less affluent.
“A blind and ignorant resistance to every effort for the reform of abuses and for the readjustment of society to modern industrial conditions represents not true conservatism, but an incitement to the wildest radicalism.” With those words in 1908, President Theodore Roosevelt showed he understood what a responsible ruling class needed to do. Where are those who would now take up his banner?
Poll shows Americans oppose entitlement cuts to deal with debt problem
Truth to power – The People