Medicare

The Public, The Budget And Plain Speaking

Scott Bittle — Wed, 07 Jan 2009 14:44:58 -0500

A trillion-dollar deficit is scary. So is a possible second Great Depression. But scarier still would be trying to solve these problems without real input from the public.

Today's new federal budget numbers from the Congressional Budget Office project an almost unimaginable $1.2 trillion deficit this year – and that's without counting any stimulus package offered by the Obama administration. President-elect Barack Obama has already said we might see trillion-dollar deficits for several years. And he also said the country can't get its fiscal house in order without tackling Medicare and Social Security.

In the end, this isn't just a matter of numbers. It's a matter of being honest with the public about the fiscal problems we have, both in the short term and the long term. The public frequently doesn't understand what's going on with the budget. Let's face it, it's incredibly arcane. But they do understand priorities.

There's no need to once again run through the Obama administration's daunting to-do list. But the nation's fiscal problems present one of the most difficult political maneuvers imaginable. The administration has to:

Spend enough to avert or at least minimize a potential depression, and persuade the public that huge deficits to do that are okay, and
Make significant, probably painful changes to deal with the nation's long-term problems, like the budget-busting costs ahead for Medicare and Social Security – and persuade the public to go along with those changes.

In other words, the government has to buy round after round of drinks and then, eventually, cut people off. Go into a bar and try that sometime. It takes some explaining.

This strategy makes perfect sense to economists and budget experts. But they're not the ones who need to be persuaded. For the public, the idea of "huge spending now, fiscal restraint later" may be harder to swallow. They need a chance to work through the options, think through the priorities. In other words, they need to be engaged.

Candor is a start, and it's been notably absent on this issue for a long time. President-elect Obama's blunt warnings this week have been much more frank than he was on the campaign trail. So is the fact that the administration says it wants to use the grassroots network from the campaign to tackle health care (rising health costs are a critical part of the problem here). It's at least a beginning in terms of laying the groundwork needed to bring the public along. But it will take more than that. Because one thing is certain: the public isn't going to let the government do what's necessary to solve these problems without their consent.

The Crisis After This One

Scott Bittle — Mon, 20 Oct 2008 13:59:03 -0400

More and more economists are arguing that a global financial crisis isn't the time to worry about the federal deficit. A wide range of budget expert and economists – even the ones who'd normally be considered budget hawks -- say the government has to do whatever it takes to stabilize the financial markets, get credit flowing, and mitigate the recession that's almost certainly upon us. If that means running deficits, they argue, then that's what we'll have to do.

And make no mistake about it: the federal government will run deficits over the next few years. The Congressional Budget Office projected deficits of more than $400 billion for the next two years, even before the global financial crisis hit. Since then, we've added a $700 billion bailout plan, and the next presidential administration will very probably add some sort of additional stimulus package to that. That could add up to an unprecedented $1 trillion deficit next year.

Despite any campaign rhetoric you may have heard, it's going to be almost impossible to balance the budget under those circumstances. You can't possibly cut spending enough or raise taxes enough to bring those figures into line without doing massive damage to vital programs or to the broader economy.

So, fair enough. When you're trying to put out a fire, you don't worry about how much water you're using. No one wants the U.S. economy to wind up like Japan in the 1990s. The real challenge facing us will be making sure the solution to the current crisis doesn't set us up for the next one.

It's absolutely true, there are times when running a deficit makes sense. And if the government only ran in the red during recessions and national emergencies, we'd be laughing. But in this country, we routinely ask more of the government than we're willing to pay for. The U.S. has run a deficit for 31 of the last 35 years, and we weren't in a constant state of crisis for those decades. Deficits are the default setting, and they make it harder to deal with real emergencies when they do crop up.

Secondly, the long-term outlook for the federal budget is very, very ugly. Every expert who looks at the long-term state of the budget uses the same word to describe it: unsustainable. The national debt has reached a staggering $10 trillion, and we've got another $53 trillion in liabilities ahead of us to pay for Medicare and Social Security for the baby boomers.

The national debt and those future liabilities could represent the next crisis, after this one. Unless we get the government's financial house in order, unless we find a way of paying for Medicare and Social Security, we'll be looking at a government debt crisis that could be just as painful – and just as avoidable – as the current financial meltdown.

The good news is that, unlike the global financial meltdown, we still have time to deal with the federal budget. Not much time, perhaps, but some. The key thing now is to cope with the current credit crisis and slumping economy without making our long-term budget problems too much worse. We probably can't avoid adding to the national debt to get through the current emergency. But we can at least make sure the money we're borrowing is used wisely: to stimulate the economy and make decisions that will strengthen us in the long run. And we can – we absolutely must -- start the hard work of fixing Social Security and Medicare before they get out of hand.

Otherwise, we may find a second fire has been smoldering while we're been preoccupied with putting this one out.

Voter's Survival Kit: Health Care, So What's the Plan

David White — Tue, 09 Sep 2008 13:52:46 -0400

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There are many ideas about how to improve the American health care system – and frankly it’s going to take a while to really make sense of the situation and fix all the problems Americans complain about. But here are three different directions a lot of politicians talk about, directions the country might move in.

CHOICES IN BRIEF

Use Competition to Make the System More Efficient

Expand the Current System to Cover More People

Create a National Health Care System

The main problem with the health care system is that costs keep going up. All the other problems in the health care system stem from this and won't be solved until we give everyone real choices and the ability to take responsibility for what they spend on care. That means reducing regulation and using free market competition to allow insurers to offer a wider range of plans. We should also embrace managed care, which watches expenses carefully and has already slowed down the rise in health care costs. By moving further in the direction of managed care and adopting medical savings accounts, which encourage individuals to save and shop around for health care, we’ll be able to bring down costs and cover more people.

We don’t need to rip up the existing health care system and start over. We already have the best, hightech medical centers in the world and insurance programs in place that cover 85 percent of Americans. We can just extend those proven programs, public and private, to cover more people. We can require employers and individuals to have health insurance and offer them financial incentives to make it affordable. The federal government already has effective health programs for the elderly (Medicare), the poor (Medicaid), low-income children (CHIP) and its own employees. If we expand the eligibility for those plans and require employers to offer coverage, we’ll be able to cover more uninsured people with the least disruption to those who already have insurance. Gradually expanding the current system is the most practical way to cover more people without breaking the budget.

Decent health care ought to be a basic right, not something that depends on the job you hold. Our patchwork health care system of private insurance and government programs simply isn’t working. It’s time to try what Canada and most European countries already have: a national, government- run health care system. The system would work much like Medicare, except that everyone would be entitled to coverage, regardless of age, income or job status. Like Medicare, you’d still pick your own doctor, but the government would get the bill. We’ve debated what to do about health care for years, but nothing else has solved the problem. This is the only way to solve the problem of the uninsured, once and for all.

CLICK HERE TO SEE THE CHOICES IN DETAIL

Use Competition to Make the System More Efficient

Expand the Current System to Cover More People

Create a National Health Care System

What should be done?

Offer tax credits and tax-free medical savings accounts to make it easier for people to buy individual coverage.

Make your insurance “portable” so people can keep the same policy if they change jobs and not be totally dependent on what their employer provides

Encourage more employers to provide coverage through HMOs and other forms of managed care to ensure competition.

Encourage small businesses to join together in insurance pools to negotiate for better rates.

Encourage the use of lower-cost generic drugs and allow people to buy approved drugs from Canada and Europe. Charge patients more if they insist on brand-name drugs.

Allow private insurers to create basic policies that would cover the most common problems and make coverage affordable for small businesses and individuals.

Require employers to offer health coverage to all their workers, even low-wage or part-timers. Offer tax incentives to business to cover the cost.

Lower the Medicare eligibility age to 55.

Extend the Children’s Health Insurance Program cutoff age to 25.

Increase Medicaid funding and raise the income cutoff to cover the working poor.

Open up the federal employee health insurance program to allow individuals without insurance to buy coverage at favorable rates.

Create a Medicare-style "single payer" system, where the government provides health insurance for everyone.

Allow patients to get a standard list of covered health services from any doctor or hospital in the program.

Raise taxes or repeal existing tax cuts to fund the program.

Tie the new health insurance system into existing government programs to promote good nutrition, mental health awareness and exercise.

Arguments For This Approach

If the health care system becomes more efficient, we can provide more services for more
people, without spending more money.

The constant rise in health care costs hurts everybody – it burdens business and government and makes insurance too expensive for lowincome people.

The only way to control costs is for insurers, health care professionals and patients to make decisions about what they really want and need. That means empowering patients to set aside money tax-free for medical care and allowing them to seek out cheaper alternatives, like drugs from other countries.

HMOs and other forms of managed care control costs by relying on competition, rather than heavy-handed government programs.

By expanding existing programs and employer- provided insurance we can cover most of
the uninsured.

This is the least disruptive way of attacking the problem – it won’t require massive changes in how the health care system operates or how people get their insurance.

People will still be able to pick their own doctors and health plans and get the same quality of care.

Health care should be a right, not a privilege for those lucky enough to have a good job, or to be over a certain age. This approach is the only way to guarantee that everyone gets medical care.

ICountries with national health care systems often have good health care at a lower cost because the government can make bulk purchases of drugs and control costs.

This will actually reduce paperwork. Doctors and hospitals will only have to deal with one set of forms and one government agency, rather than dozens of private companies and government agencies, all with different rules.

Any new taxes will be offset by the savings earned when employers and workers no longer
have to pay insurance premiums.

Arguments Against This Approach

This approach will do little to expand health care to the millions of Americans who don’t have insurance.

This will mean patients will have to face a lot more red tape and may even be turned down for treatment an insurance company decides is too expensive.

Under managed care, decisions about treatment are often made based on what’s cheapest, not necessarily the best.

The real reason health care costs are going up is new, expensive treatments and the aging population.

This will be an expensive expansion at a time when the federal government already has a budget deficit, and we still may end up with some people uninsured.

The Medicare program is already at risk and will likely go broke as it deals with aging baby boomers. Adding more people to Medicare will just cause the program to collapse more quickly.

This will do nothing to control health care costs, which are rising at an outrageous rate.

Requiring employers to provide coverage will be expensive, and even if the government helps with the cost, we’ll still impose a huge paperwork burden on business.

Under this plan, a government bureaucracy tells you what health care you can have.

In Canada and other countries it’s common to wait months for elective treatments or surgery.

This will require steep tax increases. All the health care costs now paid by private industry
would be taken on by taxpayers.

The Canadian and European health care systems are expensive and those nations struggle to cover their costs without breaking the budget.

Health costs will still be a burden to businesses, which will trade a health insurance plan they can control for a health care tax they can’t.

CHOICES PLUS & RISKS

Use Competition to Make the System More Efficient

Expand the Current System to Cover More People

Create a National Health Care System

The big plus is that people would have many more choices for the kinds of insurance
they want and competition among insurers for your business would make the policies more affordable.

The big risks are that insurers would take advantage of the situation and that most people really need help deciding which policies will be best.

The big plus is that this builds on our current system and keeps most of the healthcare system in the private sector – not in the hands of government.

The big risks is that this expands a system that is astronomically expensive and confusing – it does very little to squeeze the duplication and excess out of the system.

The big plus is that everyone would have insurance and the money now going to insurance companies and their profits could actually be spent on health care.

The big risk is that this would be monumentally expensive and give a big government agency the power to say what kind of care will be covered and what won’t.

Voter's Survival Kit: Taxes, Spending and Debt, So What's the Plan

David White — Tue, 09 Sep 2008 13:42:27 -0400

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There are many ideas about how to fix the federal budget – and frankly it’s going to take a while to really make sense of the situation and fix all the problems Americans complain about. Here are three different directions a lot of politicians talk about - directions in which the country might move.

CHOICES IN BRIEF

Balance the budget as quickly as possible and make sure it’s balanced from here on out, including raising taxes to cover what we spend.

Immediately focus on Social Security and Medicare, including raising taxes and fees to recipients and trimming benefits for recipients down the road.

Keep taxes as low as possible, but reduce the size of government by making major cuts in popular areas such as defense, health care, education and higher education.

The first order of business has to be getting the nation's checkbook in order. We live in a consumption-oriented culture, and the government is leading the spending parade. All our borrowing and spending has gotten out of hand, and we simply cannot continue to run deficits. Every time we run a deficit, the government has to borrow money to make up the difference, and our national debt has reached enormous levels. We should not burden our children and grandchildren with the huge debts we were unwilling to pay.

Unless we act now, Social Security and especially Medicare will end up both breaking the budget and failing to serve the elderly when the baby boomers retire en masse. As Federal Reserve Chairman Ben Bernanke recently told Congress, the best time to get started addressing this problem was "10 years ago." This simply cannot wait any longer. We shouldn’t change the rules for people who are already retired (or about to be), but we really have to make some changes or the programs will become unaffordable.

Federal spending has mushroomed since the 1970s, and government programs are rife with waste and mismanagement. Raising taxes to cover federal spending will just give government more of our hard-earned dollars to spend wastefully. Plus, keeping taxes low helps spur economic growth and allows Americans to keep more of their own money.

CLICK HERE TO SEE THE CHOICES IN DETAIL

Balance the budget as quickly as possible and make sure it’s balanced from here on out, including raising taxes to cover what we spend.

Immediately focus on Social Security and Medicare, including raising taxes and fees to recipients and trimming benefits for recipients down the road.

Keep taxes as low as possible, but reduce the size of government by making major cuts in popular areas such as defense, health care, education and higher education.

What should be done?

Passing "pay-as-you-go" legislation, meaning that if a spending bill is passed, it must be offset by either a spending cut someplace else in the budget or a raise in taxes to cover the new expenses.

Letting all or at least some of the Bush tax cuts expire to help reduce the deficit.

Setting long-term financial goals to pay down the debt.

If we manage to run a surplus, using any extra funds to pay off the debt or bail out entitlement programs.

Passing a balanced budget amendment to the Constitution. Most states have this and it simply makes it illegal to run a deficit and run up debt.

Reducing Social Security benefits for wealthy retirees and set higher fees and co-payments for higher income retirees on Medicare. These programs should provide security for middle-income and lower-income people – not extra spending money for affluent seniors.

Raising the cap on Social Security taxes. Right now, payroll taxes are only collected on incomes up to $102,000 per year. That means that workers who make $200,000 and $300,000 a year are paying the same taxes as people who earn much less.

Gradually pushing back the retirement age and phasing out the policy that lets people start collecting benefits at a lower rate at age 62. When Social Security began in 1935, life expectancy was about 61. Now, a child born in 2005 can expect to live to nearly 78.

Allow Medicare to purchase drugs in bulk (and thus get cheaper rates). This is what the VA does and what other countries do to keep drug prices down.

Extending the Bush tax cuts and reducing taxes on business – they are the engine of our economy.

Cutting growth in government programs and carving out the waste and extra costs, such as outside contractors who charge the government billions of dollars each year.

Eliminating earmarks and other "pork-barrel" add-ons to legislation that allow members of Congress to slip in funding for their pet projects without a vote.

Shifting more domestic policy responsibilities – areas like Medicaid and education -- to states.

Having the private sector take on tasks like air traffic control and safety inspections.. It can handle them more efficiently and at a lower cost.

Arguments For This Approach

If government won't take responsibility for its spending habits, then we need to remove the option of borrowing and creating more debt. Running deficits is irresponsible and dangerous.

Why should the government run its financial house any differently from the way families and businesses run theirs? Your spending has to be in line with your income.

Income taxes are at historically low levels. It’s time to raise taxes to stop the flow of red ink. That’s what we did in 1990, and combined with spending cuts,that's what led to the budget surpluses of the late 1990s.

Social Security can wait. Even after 2040, it will have enough incoming revenues to pay more than 70 percent of promised benefits. But continuing to run deficits is a problem that simply cannot be deferred to another day. The time to act is now.

Now is the best time to reform senior entitlement programs, while many of the baby boomers are still working and the number of seniors covered is relatively small.

It's more fiscally responsible to reduce benefits than to allow the programs to collapse entirely and leave nothing for our children.

Social Security was conceived as a safety net. Reforms will keep the program financially sound so it can be there for future generations. Social Security should not provide extra income to affluent seniors who are fortunate enough to have very comfortable retirements.

Baby boomers are living and working longer, and are in better health than when the entitlement programs began. Social Security is based on outmoded assumptions about who's old. Why should people be encouraged to retire in their early and mid-60s?

By focusing on cutting waste, we'll have a leaner budget to work with that will save money in the long run.

Tax cuts spur the economy and help create jobs. If the economy is struggling, having a balanced budget won’t be all that comforting.

The government should focus on truly national concerns, such as foreign relations and defense. The federal government doesn’t need to be in the health care or education business.

Arguments Against This Approach

Forcing the government to maintain a balanced budget is like a financial straightjacket. There's no wiggle room for wars, national emergencies or recessions, when we would really need extra funds.

Deficits aren't necessarily bad. The U.S. has run on deficits for several generations, and the economy has grown. Plenty of economists say deficits actually help spur economic growth.

Raising taxes just gives government more money to waste. Why should taxpayers dig into their pockets while the budget is still fat with earmarks and unexamined billions in the defense budget?

Balancing the budget is only part of the challenge. Unless we get a grip on the entitlements, particularly Medicare, we'll never have our finances under control.

We promised income and health security to the elderly, and we shouldn't balance the budget on their backs – especially since elected officials borrowed from the Social Security Trust Fund.

If we make wealthier Americans pay higher taxes for Social Security and we reduce the benefits they receive from the program, they may stop supporting it. Social Security needs broad political support.

Focusing on cutting health care costs would be a much more effective strategy. Medicare is in much deeper trouble than Social Security, and that’s because health care costs are soaring.

Ending earmarks and pork-barrel spending is important, but it doesn’t help that much when it comes to balancing the budget. Earmarks cost about $17 billion dollars in 2008. Meanwhile, the 2008 deficit is well over $400 billion.

Over two-thirds of the budget goes to just five areas: defense, Social Security, Medicare, Medicaid and interest on the debt. The first four are broadly supported, and making cuts there will be extremely difficult politically. We have no choice in paying interest on the debt.

Taxes are at historically low levels, and the benefits of the last round of tax cuts have gone disproportionately to very wealthy Americans. This plan means cutting government spending on health care and education to benefit the country’s more affluent taxpayers.

Voter's Survival Kit: Taxes, Spending and Debt, Quotes to Consider

Peiting Chen — Tue, 09 Sep 2008 13:32:19 -0400

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Think everyone agrees on the problem and what to do about it? Here’s a sampling of what some influential people have to say about the issue:

“The longer we wait, the more severe, the more draconian, the more difficult the adjustment is going to be. I think the right time to start is about ten years ago.” — Federal Reserve Chairman Ben S. Bernanke January 2007		"The Social Security trust fund is what I call a fiscal oxymoron. It shouldn't be trusted, and it's not funded." — Former Commerce Secretary Pete Peterson, 2005

“The hypocrisy of giving the very richest Americans a huge new tax break at the same time they say we can’t afford Medicare and Social Security speaks volumes about Republican priorities. If we have a hundred billion dollars to spend each year, it would certainly be better to protect Social Security and Medicare for future generations.” — Sen. Edward M. Kennedy (D-MA) June 2006		‘"Raising taxes . . . won't help balance the budget -- it will slow the economic growth that is creating the new jobs of tomorrow and increasing revenue to the federal government . . Keeping our economy strong and promoting fiscal responsibility will get the job done. Raising taxes won't." — House Minority Leader John Boehner (R-OH) February 2007

“Nations purchase prosperity by saving and investing and being prudent, not by running big deficits. So we cut the deficit, balanced the budget, sent interest rates down, helping people to buy new homes, helping more entrepreneurs to start new businesses.” — President Bill Clinton January 1999		“By the time the financial markets tell us we've gone too far, it will be too late to fix this in any rational way. We are the toad in boiling water, where it's getting hotter and hotter and nobody's really noticing." — Maya MacGuineas, Committee for a Responsible Federal Budget “Blessed are the young, for they shall inherit the national debt.” — President Herbert Hoover (1874–1964)

“When the economy faced some rough waters, and we could have put tax cuts into the pockets of families most likely to need the money and spend it, George Bush chose massive tax giveaways for the wealthiest individuals that blew the surplus and did next to nothing to get our economy moving." — Sen. John Kerry (D-MA) September 2004		“No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth!” — President Ronald Reagan October 1964

Voter's Survival Kit: Taxes, Spending and Debt, The Fix We're in Now

Peiting Chen — Tue, 09 Sep 2008 12:32:29 -0400

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Right now, the U.S. economy seems to be in shambles, and most Americans want the government to play some role in helping us get through this. But government's ability to help out -- whether by cutting taxes or stabilizing the financial system or helping Americans who are down on their luck -- is severely hampered by its own dire economic condition.

For 31 out of the last 38 years, the U.S. government has spent more on programs than it has collected in taxes. This year, the red ink (that’s the deficit) could be close to half a trillion dollars. And the government projects further deficits for the next several years.

When the government spends more money than it collects, it borrows to cover the cost. Over time, the U.S. government has accumulated a staggering $9.5 trillion federal debt. Right now, we spend more money each year on interest on the debt than we spend on the war in Iraq.

There’s simply no way the government can cut taxes, or even keep them at current levels, and still afford all the programs people say they want. Something’s got to give.

Budget experts across the political spectrum – liberals, conservatives and the government’s own auditors – say the country is facing huge additional expenses in Medicare and Social Security as health costs rise and retiring baby boomers begin to leave the work force.

Medicare is the biggest problem. Not only does Medicare have to cover the needs of 78 million baby boomers, it also has to deal with health care costs that are rising much faster than the rate of inflation.

If we do nothing, the country’s debt will be growing faster than our economy in about 15 years, which means we won’t be able to keep up. By 2040, the country would need nearly every dollar it collects in taxes just to cover the costs of Medicare, Medicaid, Social Security and interest on the debt.

To protect Americans who rely on Social Security and Medicare and reduce the unsustainable costs of these programs, we need to start reforming them right away. Relatively small changes now will make a big difference later, but the longer we wait, the harder this will be for everyone.

Key sources for this data: Budget of the United States Government; Congressional Budget Office, The Long-Term Fiscal Outlook, December 2007; U.S. Government Accountability Office, The Nation's Long-Term Fiscal Outlook April 2008; Facing Up to the Nation's Finances; "Where Does the Money Go?", by Scott Bittle and Jean Johnson

Voter's Survival Kit: Taxes, Spending and Debt, How We Got Here

Peiting Chen — Tue, 09 Sep 2008 11:59:39 -0400

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The U. S. has been living beyond its means – way beyond its means. We’ve been running the government on credit and racking up a huge amount of debt. What’s more, we have some very big expenses ahead: the 78 million baby boomers who have been paying into Social Security and Medicare are beginning to start pulling money out.

Health care expenses continue to skyrocket, meaning that it's increasingly expensive to give seniors the care we've promised. These facts have led experts inside and outside of government -- both conservatives and liberals -- to warn of an approaching "fiscal train wreck" unless we take measures to address the problem.

It’s not some hazy, far-off, inside-the-beltway problem. If the red ink keeps flowing and we don’t face up to some realistic choices on the budget and Social Security and Medicare, we could jeopardize the health of our economy and our standard of living.

The choices we make now will affect the amount of your paycheck, whether you can get a college loan or home mortgage, whether interest rates are high or low and whether older Americans (maybe that’s you, or your parents or grandparents) can make ends meet and get the medical care they need.

To put the federal budget into perspective, consider your personal finances. When you make a household budget, you start with certain fixed expenses: rent or mortgage, utility bills, insurance, etc. What's left over can be spent at your discretion. The same principle applies to the $3.1 trillion national budget.

Where The Money Goes

Here's a breakdown of how the government spends that $3.1 trillion:

More than 40 percent of the federal budget goes to fixed expenses like Social Security, Medicare and Medicaid. The government is obligated by law to pay these “mandatory” programs. They’re also known as entitlements, because when you reach a certain age or drop below a certain income level, you’re entitled to them. The benefits are set by specific formulas, so they’re essentially on autopilot.
About 20 percent of the budget goes to defense. It’s a huge amount of money, but the defense budget took up an even larger share of the budget (over 25 percent) in the late 1980s.
Interest on the federal debt accounts for 8.7 percent of the budget. No way around that. The country has to pay it. Think of it as the equivalent to the minimum balance payment on your credit card.
What's left over is called "non-defense discretionary" spending, which is essentially everything else, from parks to foreign aid. It's this part of the budget that attracts the most debate, with politicians annually haggling over how much to spend and on what.

Social Security and Medicare: Why the Experts Worry

One very big problem in the budget is federal spending on Social Security and Medicare, which is on the rise and is going to keep on rising for quite a while. Here’s what you need to keep in mind:

Social Security is a pay-as-you-go system. People working now pay taxes that are mostly used to pay benefits for people who are retired now. Now that the huge baby boom generation is getting older, the number of retired people is about to rise dramatically.
The first baby boomers have just started applying for Social Security. An estimated 10,000 people a day will become eligible for Social Security benefits over the next two decades.
In 2017, Social Security will start paying out more in benefits than it collects each year in payroll taxes.
There is a Social Security trust fund, which will run out in 2041, but since politicians have already borrowed money from it to cover other government expenses, that’s not as comforting as it sounds. Meeting Social Security’s expenses will put pressure on the government long before 2041.
Sometimes people say Social Security will go bankrupt in 2041, but that’s not exactly true. Workers will still be paying into the system, so it will still function, but it would only be able to pay three-quarters of the promised benefits.
Medicare, the giant health care program that covers the elderly and disabled, is facing a double whammy. Not only does Medicare face a rising tide of boomers, but it also gets hit by the rapidly rising cost of health care.
Projections say the Medicare trust fund will be exhausted in 2019, a mere 11 years away. At that point, the federal government would either have to cut benefits, raise premiums or shift money from other programs to cover the costs.

The worst-case scenario would be that the country keeps procrastinating. The entitlement programs, flying along on autopilot, could become just plain unaffordable or the government has no money left to do anything else. That would leave us in a horrendous position. Either we would have to start putting crushing taxes on working people to cover the cost or we would have to cut back on benefits for people who are frail and elderly. This is choice we can avoid if we start making reforms to Social Security and Medicare right away.

Where The Money Comes From

So we know where the money goes once it comes in, but where does it come from? To pay the bills, the government relies on tax revenue from you, your neighbors and your employers.

Here’s the big picture:

45.3 percent comes from income taxes. Although income taxes are always controversial, it’s worth noting that the top tax rates today are substantially lower than they were after World War II, really up through the mid-1980s. President Bush and Congress passed significant cuts in 2001 and 2003, but these are set to expire in 2010.
33.9 percent are payroll taxes for Social Security and Medicare. These are taxes paid by workers and matched by their employer.
14.4 percent comes from corporate taxes. Although the first images that come to mind may be big corporations like Exxon Mobil and Microsoft, it’s worth remembering that this category also includes small businesses and even “mom-and-pop” stores.
The remainder comes mainly from taxes on alcohol, tobacco and gas. These excise taxes make up about 2.5 percent of the government’s revenues. States also collect taxes in these areas, so if you’re really steamed about taxes on gas or cigarettes, you probably need to blame both the feds and elected officials closer to home.

What usually happens, however, is that the revenue isn't enough to cover all the expenses – that’s considered a deficit.

Both revenues and spending climbed to record levels in 2008. But we are still spending more than we take in -- hence, the deficit. The White House projects the federal deficit will hit a record $480 billion in 2008 – and that projection may well be low, since it doesn't take into account the full cost of the wars in Iraq and Afghanistan.

The nonpartisan Congressional Budget Office projects that deficits will remain above $400 billion a year through 2010. The CBO projects the deficit will go down after that, but they estimate the government will be running deficits through 2018, even if we let the Bush tax cuts expire as planned in 2010.

Every year that there’s a deficit, the government borrows money to cover its bills, often from banks and foreign countries such as China. The total tally of all the past deficits, plus interest, is called the national debt. We've added more than $3.5 trillion to the debt since 2001.

Another Day Older and Deeper in Debt

The national debt is remarkably similar to your personal credit card. Think of the debt as the total amount you owe. You have to make regular minimum payments, which is the interest. Every time you ring up a new charge (the deficit), you add to the total debt. So even if you stop making any new charges (eliminate the deficit), you still have this outstanding debt that requires interest payments. Interest payments on the national debt are the fifth-largest spending category in the federal budget, just behind the defense and the three major entitlement programs.

One other development that worries many people is that about a quarter of the national debt is now held abroad. Our top lender is Japan, but China is right behind. The top ten list also includes “oil exporting” nations and Caribbean banking nations. In some ways this is a compliment because it means that other countries consider U.S. Treasury bonds a good place to put their money. The risk is that, at some point, some of them may decide that they would rather put their money elsewhere, which could leave the U.S. government in a credit crunch. Some foreign policy experts also worry that this reduces our influence worldwide – we are less likely to really press the Chinese, for example, on intellectual property rights or global warming because we need them to keep lending us money.

The Time Has Come

The nation’s finances are actually a bunch of interconnected problems. The national debt has grown because of the government’s inability to balance its year-to-year budget. Social Security needs help because of the demographic pressure from the baby boomers, while Medicaid expenses are rising because of skyrocketing health care costs. And Medicare is in trouble because of demographics and health care costs together.

But while the solutions to each of these may be unique, each also has to be tackled as part of the larger problem. The next president and Congress won’t be able to avoid some choices here. President Bush’s tax cuts are set to expire in 2010; whether some or all of them are extended will have a significant impact on the year-to-year budget. Republicans have argued that the tax cuts helped jump-start economic growth and contributed to an increase in revenues. Democrats say most of the tax breaks were skewed to the wealthy and instead spurred the record deficits.

Most experts also say that the sooner we start on reforming entitlement programs, the less painful the adjustments will be. Waiting until the crisis is upon us would require really drastic measures, either in terms of raising taxes or cutting benefits.

What happens in Iraq and Afghanistan will have an impact on the budget, too. Some people blame the wars for the skyrocketing national debt, but that’s only partly true, at best. The Congressional Budget Office estimates the government spent $651 billion on the “war on terror” between September 2001 and February 2008. During that same period the national debt swelled by about $3.2 trillion. The CBO estimates that, presuming we maintain a presence in both countries the war on terror could be as high as $1.7 trillion by 2017.

All this means that the future of our economy and way of life may be dramatically affected by the choices we make today for managing the nation’s finances. The debate over the budget is certain to play out in the 2008 election. The numbers are large and the problems daunting. Where do we begin?

For more on these issues, visit PublicAgenda.org guides on Social Security and Medicare.

Medicare's Self-Inflicted Wounds

Scott Bittle — Thu, 21 Aug 2008 11:50:31 -0400

Today's New York Times story on Medicare fraud raises an interesting question: Who pays the medical bills when a government bureaucracy shoots itself in the foot?

The Times reports that a yet-to-be-released inspector general's report will say Medicare officials overstated their efforts to cut fraud, and in fact instructed their auditors to skip certain procedures that might have spotted bad claims. The report hasn't been released yet, and some of the reported findings may get pulled back. But the Times says the report found more than one-third of Medicare spending for medical equipment in 2006 was improper, This was at the same time that Medicare officials were boasting their new anti-fraud effort blocked $700 million in bad claims.

If it's true, the worst part is that Medicare is wasting a lot more than money.

Medicare is by far the most frightening element of the long-term fiscal problems facing the federal government. The combination of out-of-control health care costs and the retirement of 78 million baby boomers will push Medicare spending into the stratosphere. In fact, Medicare will need to dip into its "trust fund" to cover expenses for the first time this year, and the first baby boomers aren't even eligible yet.

Most budget experts will tell you that getting rid of waste and fraud won't be enough to cure Medicare's problems. We'll have to look at things like controlling health care costs, cutting benefits, or raising premiums – and probably some combination of all three.

But that's going to be a very tough sell to anyone who's read the Times story. When Public Agenda conducted focus groups on the nation's fiscal problems, we found people were at least willing to consider all kinds of solutions, including painful ones. But the biggest barrier was trust, in the form of a deep skepticism about the government. People care about Medicare, and they might consider making sacrifices to save it – but only if they thought the government would spend the money wisely. Why should they give the government more money if the government can't hang on to the money it's already got?

The potential cost in public trust here is going to be a lot more expensive than the cost of fraudulently-billed wheelchairs and oxygen tanks. Without trust, we can't solve Medicare or any of the other long-term fiscal problems we face. And failing to solve these problems would be very expensive indeed, for all of us.

Debt: The Movie

Scott Bittle — Tue, 19 Aug 2008 12:22:21 -0400

Can a movie get people fired up about the national debt? I.O.U.S.A. is going to try.

The documentary is opening in more than 400 theaters this Thursday, including a live national town hall discussion featuring Warren Buffett, Pete Peterson and former comptroller general David Walker, all of whom have been sounding the alarm about this issue. The Peterson Foundation is putting a lot of effort behind promoting the movie (and other efforts to get the public involved, including funding Public Agenda's role in the Students Face Up to the Nation's Finances initiative). The goal is to be, as Reuters put it, "An Inconvenient Truth" for the economy. And the public certainly needs to know about the dire state of our nation's finances.

But will it work? I haven't seen the movie yet, but I'm hopeful people are ready to listen. I've talked to a lot of people this year about this problem, and I've been really struck by two things. One is that few Americans actually know how bad the situation is. This is one of those facts that everybody inside the Beltway understands – and yes, that includes Barack Obama and John McCain – but very few outside the Beltway know.

The second is how quickly people grasp onto the situation once they know the basic facts and how open they are to solutions. And this is critical. Because there's no way the American people are going to allow the government to make changes to their retirement plans, their health care, and their taxes without their consent. If I.O.U.S.A. can move people to start thinking about these issues and what needs to be done, then it's made a major contribution.

If you want to get a taste of the movie, here's the trailer. If you want to find out where it's playing and maybe get in on the town hall Thursday night, you can find out here.

Census: U.S. Will Be Older, More Diverse

Scott Bittle — Thu, 14 Aug 2008 13:35:35 -0400

The Census Bureau sums up one of the nation's most significant trends very neatly today: "An Older and More Diverse Nation by Midcentury ." There will be a lot of more of us, too, with the U.S. population projected to hit 400 million by 2039.

Minorities, who are now about a third of the total population, will become the majority of Americans in 2042. And by 2030 one in five Americans will be age 65 or older.

It's hard to think of a public issue that won't be affected by this change. But here are two to start with:

If you've paid any attention at all to the debate over the nation's long-term fiscal health, then you already know that the aging of the baby boomers is a major reason why Medicare, Social Security and our skyrocketing national debt are major concerns. But that's only one of the issues we're facing.

This census report really goes to the heart of one of the nation's most persistent problems: the education achievement gap between white and minority students. The achievement gap's unacceptable now, and it'll be even more devastating when minorities make up most of the workforce. Public Agenda's surveys find that minority parents and students put a high value on education – but they're much more dissatisfied with their schools . Three in 10 black youngsters report very serious levels of disruption and unrest in their schools – not just "somewhat serious," but "very serious." Black students are twice as likely as white students to say that schools not getting enough money is a very serious problem in their community.

The educational system may also have to do more to prepare the nation's teachers for a more diverse student body. In our Lessons Learned survey of first-year teachers, we found three-quarters said their training had covered teaching a diverse group of students – but only four in 10 said that it helped them "a lot ."

Fear and a Lack of Realism

Jenny Choi — Wed, 21 May 2008 10:51:12 -0400

Recent surveys show that a large majority of the public is afraid Medicare will not be there for them when they retire and that major change is needed. Beyond this fear, however, surveys reveal some murky and unrealistic thinking on the part of the public. For one thing, Americans are more likely to attribute rising health care costs, one of Medicare's fundamental problems, to drug and insurance company profits than to the aging of the population or to new and expensive drugs and treatments. Few concrete proposals for Medicare enjoy widespread support. An overwhelming majority are opposed to reduced benefits for recipients or cutting back on spending. When forced to choose, most people prefer to spread the sacrifices equally among workers, employers and retirees. (See also Federal Budget.)

What is likely cost or tradeoff of each course of action?

Peiting Chen — Mon, 19 May 2008 10:45:32 -0400

What is likely cost or tradeoff of each course of action?

Peiting Chen — Mon, 19 May 2008 10:44:17 -0400

What is likely cost or tradeoff of each course of action?

Peiting Chen — Mon, 19 May 2008 10:42:43 -0400

How serious are Medicare's problems, and how substantial a change do we need to fix it?

Peiting Chen — Mon, 19 May 2008 10:41:05 -0400

How serious are Medicare's problems, and how substantial a change do we need to fix it?

Peiting Chen — Mon, 19 May 2008 10:40:06 -0400

How serious are Medicare's problems, and how substantial a change do we need to fix it?

Peiting Chen — Mon, 19 May 2008 10:38:42 -0400

What's the main thing we have to fear with regard to health care coverage for the elderly?

Peiting Chen — Mon, 19 May 2008 10:36:39 -0400

What's the main thing we have to fear with regard to health care coverage for the elderly?

Peiting Chen — Mon, 19 May 2008 10:35:36 -0400

What's the main thing we have to fear with regard to health care coverage for the elderly?

Peiting Chen — Mon, 19 May 2008 10:34:40 -0400