The current debt-ceiling standoff and the two irreconcilable views of government's proper scope

 We're back at a juncture we've found ourselves at several times. It works a little differently from the way such a juncture does in a household. (And here, we're assuming a responsible couple heading that household, a couple with a common goal of ensuring financial soundness in the present and for the future.) In a household, the people involved come to an agreement along the lines of, "Okay, given our present income, present savings plan, and reasonable confidence that both can be maintained, if we ever have to go in yet, here's how much we can handle, but we must never that."

Government has options for skirting the firmness of such an agreement. It can tax citizens more, issue bonds and print money. Congress never worries about whether those measures will actually be taken when spending bumps up against the agreed-upon limit. Treasury bond holders still seem to have enough confidence in the full-faith-and-credit premise of the arrangement to keep things shored up, at least on a band-aid basis.

How did all this get started, anyway?

It’s a legal limit dating back to 1917 that caps the level of debt that the federal government can assume. Once the U.S. hits the limit and exhausts ways to pay its bills, Congress must lift the ceiling in order for the government to continue to borrow to meet its obligations. If it doesn’t, the country could be forced to default, which experts warn would be economically catastrophic.

Republicans have waged heated battles over the debt ceiling, most notably in 2011, but they have always been resolved in time.

Now, it's true that the rush to resolve a debt-ceiling crisis is not about new spending. Government is on the hook for the debt in question. But the fact that government keeps coming to a moment like this means that no one ever thinks of operating government at a debt level far enough below the ceiling to avoid trouble.

In light of that, is it grandstanding for McCarthy to insist on spending cuts in his negotiations with Biden? That case could be made; McCarthy has something of a track record as a grandstander. But his stance is predicated on a question worth asking: At what point do we have the difficult discussions about the reason we're always up to our eyeballs in debt?

And what might that reason be? Well, that's why the discussions would be difficult:

Politicians promised you benefits, but never funded them.

That’s according to truthinaccounting.org, which noted that there’s $96.3 trillion owed in promised but unfunded Medicare and Social Security benefits — $55.1 trillion for Medicare and $41.2 trillion for Social Security.

While Uncle Sam has $5.9 trillion in assets, the $129 trillion owed in bills — including military and civilian retirement benefits — means the U.S. is in the hole for $123 trillion. Just the unfunded liabilities in Medicare and Social Security add up to $96 trillion.

It is a stunning amount coming due over the next 75 years. The Treasury Department sticks its proverbial head in the sand and does not even list the liabilities on the balance sheet of the federal government.

But not to worry, taxpayers will not actually be paying for this. How could they?

Instead, older people who have been promised these benefits likely will not be paid in full.

If by some magic we do manage to pay for these promised benefits, it is young people who would be saddled with trillions in extra taxes with nothing in return.

Unelected policy makers in the twentieth century decided for the nation that government should address two major givens of human life - old age and sickness - that had, to that point, been outside its purview. Frances Perkins, the fourth labor secretary of labor, was the architect of social security in the 1930s (as she was of the minimum wage and unemployment insurance, two more unprecedented intrusions into the life of the citizenry).  Medicare was the brainchild of a Democratic congressional majority in the 1960s who found it unacceptable that only 60 percent of older Americans had health insurance.

These programs and the thinking behind them didn't appear spontaneously. They have their roots in the progressive movement of the early twentieth century. Thinkers such as John Dewey, Thorstein Veblen, Richard T. Ely, Herbert Croly and Woodrow Wilson looked at the rapid industrialization and urbanization of the country and concluded that the Madisonian framework for American government was no longer sufficient to address the issues of the day. Furthermore, legislators elected from the populace around the country lacked the knowledge to deal with those issues by crafting bills to target each one. In their view, what government needed to do was hire a cadre of experts in areas such as transportation, infrastructure, labor, health care, education and agriculture that would flesh out with details broad mandates enacted by Congress.

This fundamentally changed the average citizen's view of his or her relationship to government.  Government, with its monopoly on the legitimate use of force, was now assuming a seemingly benevolent role as well, and private citizens would be henceforth dependent on it for basic necessities. No longer was the state just tasked with keeping bad guys foreign and domestic from knocking us over the head. Now it would assume responsibility for the planning of an individual's life course. 

Over the course of the last 90 years, people have come comfortable with the trading off of having choices as to how to plan for their basic well-being - liberty, if you will - for being unburdened with having to think about such daunting matters.

There are think tanks and lobbying organizations dedicated to the quixotic task of rolling this all back, but without an understanding on the part of the country's inhabitants of the preciousness of their freedom to steer their own destinies. That, in turn, requires an understanding that individual sovereignty is the image and likeness of the Creator's sovereignty. 

But it's pretty late in the day for a conversation like that, isn't it?

 

The third rail re-enters the national conversation

 It hasn't taken much time for the question "What moves might a GOP-majority House make on entitlements" to emerge:

Republicans don’t plan to alter benefits for current Social Security and Medicare recipients, according to Rep. Chip Roy (R-Texas).

“What we have been very clear about is, we’re not going to touch the benefits that are going to people relying on the benefits under Social Security and Medicare,” Roy said Sunday on CNN’s “State of the Union.” “But we all have to be honest about sitting at the table and figuring out how we’re going to make those work, how we’re going to deal with defense spending and how we’re going to deal with nondefense discretionary spending.”

The Republican Study Committee proposed a budget for fiscal 2023 that would gradually increase the eligibility ages for Social Security and Medicare, and change the Social Security benefit formula for people 54 and younger, while not changing it for people closer to receiving benefits.

Democrats are likely to oppose those changes, as well as any cuts to Social Security and Medicare, and an ensuing standoff could result in another government shutdown. The 2018-2019 lapse in federal funding lasted 35 days after a fight over former President Donald Trump’s border policies and immigration.

What other course of action is there? Platitudinous insistences that Frances Perkins promised that money to Americans in perpetuity do not make for workable policy.

This is not a new conversation by any means. In the 1990s, much bristling ensued when the idea of freezing benefits was floated:

Back in 2001, I served on the staff of President George W. Bush’s Commission to Strengthen Social Security. While the commission did not agree on a single reform plan, two members — economists John Cogan of Stanford University and Olivia S. Mitchell of the Wharton School — argued for freezing the value of Social Security benefits in inflation-adjusted terms. Benefits wouldn’t be cut, but Americans retiring in the future wouldn’t receive higher benefits than today’s retirees, as the current benefit formula requires. That single change would have restored Social Security to long-term solvency.

The argument was not universally well received:

But freezing Social Security benefits came with the risk that seniors would have little else to rely upon in old age. In 1995, for instance, the New York Times warned of a “great retirement crisis . . . widely anticipated for the Baby Boomers who begin to reach retirement age in 2010.” Even wealthy seniors would not escape this crisis of inadequate incomes, the Times feared. Reducing Social Security would only worsen the problem of poverty in old age. The same fears, and the same arguments, are heard today.

But its veracity has been borne out:

Yet new data from the Congressional Budget Office show that, had Social Security benefits been frozen in 2001, retirees’ average household incomes in 2019 would have been reduced by just 3.9 percent. Seniors still would have been better off than ever before, while knowing that their Social Security benefits were secure, rather than facing a 20 percent potential cut when Social Security’s trust funds run out in the mid-2030s.

In late October, the Congressional Budget Office (CBO) released new household-income figures compiled from Internal Revenue Service data. The CBO figures, running from 1979 through 2019, include salaries, investment income, welfare payments, Social Security, and even Medicare benefits, while subtracting the various federal taxes that Americans pay.

The CBO data show that in 1979, the average American over age 65 had a household income after taxes and transfers of $43,000 (all dollar figures are inflation-adjusted to 2019). Seniors’ incomes averaged 23 percent below those of working-age Americans. Retiree households were more than twice as likely to live in the poorest fifth of the overall population as to live in the richest fifth. The 1970s stereotype of retirees eating cat food, if not accurate, at least reflected some semblance of seniors’ reality.

Four decades later, the picture is radically different. By 2019, average incomes for over-65 households had grown to $97,300, a 126 percent increase. For non-elderly households, average incomes rose from $58,795 to $104,297, just 77 percent higher than 1979. The income gap between seniors and working-age Americans in 2019 shrank from 23 percent to just 7 percent. Today, seniors are nearly twice as likely to live in the richest income quintile as to live in the poorest quintile.

This boils down to a significant degree to being a case of the diminishment of human agency. The great industrial leap of the 20th century gave us an advancement in comfort, convenience, safety and longevity unlike any our species had previously see. But for many, it cultivated a mindset that vocation was the core of human existence, and that, in some form, to some degree, one would be working for some organization that would, in addition to compensating one for performing some act of value, set one up with health insurance and retirement benefits. It was an easy addition for many people to make to incorporate Social Security, and later, Medicare, into this picture of what life should look like. 

The entitlements' unfunded liability problems are a modern situation. Three hundred years ago, we didn't have air conditioning, plane travel or transplant surgery, but the state's control over our destiny was not among our concerns. 

 

 

 

Some absolutely essential plain speaking about entitlements

Dr. Jane Orient at Caffeinated Thoughts nails it:

The Washington Post of October 18 says that the biggest issues in the midterm elections are the threat that Republicans will slash Medicare and Social Security, and maybe get around to repealing ObamaCare after all. It quotes a tweet from Sen. Tammy Baldwin (D-Wis.) that Republican statements about “adjusting” entitlements are “Washington-speak for cutting the Medicare and Social Security benefits you have worked hard to earn and making you pay for tax breaks to millionaires and billionaires.”

So, will rescinding the tax cuts and taxing the “rich” even more fix the problems?

Think about it for just a minute. Didn’t seniors already earn their benefits? If so, why the need to tax the rich to pay them?

The ugly truth is that the payroll taxes paid by today’s retirees were taxes, not contributions to a protected pension program. That money was spent immediately on yesteryear’s retirees—and any excess on reducing the deficit. The money in the “trust funds” is only a claim on future tax revenues.

There is no longer any excess. Payroll taxes from fewer than three working Americans are supposed to support one retiree, and the trust funds are being drained. Retirees’ and Medicare providers’ checks are coming from the wages of burger flippers, teachers, construction workers, or anybody else who is employed. Even if you think this is fair, it is a precarious and unsustainable situation. As the Baby Boomers retire, workforce participation by men of prime working age is shrinking, and wages have been stagnant.

The rich are not sitting in their counting houses counting out their money. The money is mostly invested in enterprises that create jobs (and payroll tax revenue) and produce the goods and services we all need. Even if a draconian increase in taxes produced an increase in revenue—and it usually doesn’t—it would likely crash the economy.

The situation for all of us, not just seniors, is deadly serious, and it requires economic realism, not name-calling, bickering, platitudes, and magical thinking. 

There is no disputing this. At some point, post-America must engage in a very grown-up conversation about it.

The impossible costs of putting government in the business of caring for our health

Here's some front-page news for you:

Medicare will not be able to cover the cost of in-patient care beginning in 2026, three years earlier than initially predicted.

The Medicare Hospital Insurance trust fund, or HI, will only be able to cover 91 percent of costs in 2026, according to a trustee report released on Tuesday. This would leave the trust fund $1.4 billion in debt. That number will increase to $58.7 billion the next year, according to the report.

The HI trust fund was previously expected to become insolvent in 2023, according to the Congressional Research Service. (RELATED: Medicare Part D Costs Increased Despite Less Drugs Being Prescribed)

The HI trust fund, or Medicare Part A, “helps pay for hospital, home health services following hospital stays, skilled nursing facility, and hospice care for the aged and disabled.” Medicare Part A paid $293.3 billion in benefits in 2017.

And nothing will be done about it. Once government assumes the role of Santa Claus, it's political suicide for anyone to suggest that it's abad idea.

A bracing report from the programs' own trustees

Social Security and Medicare are headed for the precipice:

Concerning entitlements, an issue that’s fallen by the wayside since the horrific Orlando attacks, there’s more bad news. Social Security will dole out additional money to beneficiaries. Is that a good thing? Not really—it’s only increasing by a whopping $2.50, which The Associated Press aptly noted is enough to maybe buy a gallon of gas. It’s Medicare; that’s where the cliff becomes more apparent after 10 years (via AP):

Meanwhile, Medicare is expected to go bankrupt sooner than expected – 12 years from now. And some beneficiaries could face higher monthly premiums next year.

The annual report from the trustees of the government’s two bedrock retirement programs warned that politically gridlocked Washington needs to act sooner, rather than later, to shore up finances and avoid upending the lives of millions of retirees and their families.

Social Security’s trust funds are expected to be depleted in 2034, unchanged from the trustees’ projection a year ago. Medicare’s trust fund for inpatient care will be exhausted in 2028, two years earlier than previously projected.

If Congress allows either fund to run dry, millions of Americans living on fixed incomes would face steep cuts in benefits.

[…]

After Social Security’s trust funds are depleted, the program would collect enough in payroll taxes to pay only 79 percent of benefits.

Medicare’s problem is more immediate, and more complicated, because health care costs can change in unpredictable ways.

Friendly reminder that 10,000 baby boomers today, tomorrow, and over the next two decades become eligible for their states’ respective Medicare and Social Security rolls. The ship of state sees the iceberg ahead—and we’re going to hit it unless we do something. 

And, at the risk of being the skunk at the garden party, allow me to say that "do something" means restructuring them in the direction of privatization.

Medicare explained

Unworkable by design:

The federal government is set to cut Medicare spending on older Americans and also to extract more Medicare taxes from younger Americans who can’t get any benefit from the program.

“Medicare is totally flying under the radar,” Dr. Lee Vliet, a preventive medicine physician with practices in Arizona and Texas, tells Breitbart News.

“Medicare is a single payer system in that funding comes from the taxpayers, but it is like Obamacare in preserving a lucrative role for private cronies, who receive the government money and disburse it,” Vliet explains. “When Medicare was enacted there was immediate trouble with an explosion in costs, resulting in an almost immediate violation of the original legislative promise of no interference with physician decision-making, or with their compensation.”

Older Americans on Medicare have faced big out-of-pocket costs that are about to get even bigger. In a report on Obamacare’s sixth year, Heritage Foundation health policy expert Dr. Robert Moffit notes that President Barack Obama’s signature healthcare reform would cut $715 billion from Medicare over the next decade to help pay for Obamacare.

“It is logically impossible to cut payments for Medicare services without affecting seniors who depend on those services,” Moffit writes, observing that in their 2015 report, the Medicare Trustees confirmed the Center for Medicare and Medicaid Services (CMS) Chief Actuary’s concerns about the severe impact of Medicare healthcare provider payment reductions on older Americans’ access to healthcare.

The CMS Actuary projected that by 2040, most hospitals, skilled nursing facilities, and home health agencies will become unprofitable, leading to a significant reduction in access to healthcare for older Americans.

“Few seniors have complained about the lack of an alternative, or the fact that seniors must enroll in Medicare Part A if they want their Social Security benefits,” Vliet observes. “The question is: Will Medicare be able to continue to provide the care today’s seniors expect? The answer is an unequivocal NO.”

Medicare is a government-run ponzi scheme, enacted by President Lyndon Johnson in 1965, which shifts the cost of healthcare for current older Americans on to younger working Americans.

In addition to the problem of increasing restrictions on healthcare for Americans on Medicare, there is the other dilemma of forcing younger, working Americans to pay for current Medicare recipients’ health needs even though the Medicare program will unlikely be there for them when it is their turn to retire. The question remains whether younger Americans should be able to save for their own retirement healthcare rather than be forced to pay taxes into a declining Medicare system.

Americans must sign onto Medicare Part A – which covers hospitalization – when they turn 65, or else forfeit their Social Security benefits. Unelected bureaucrats created this rule in the 1990s during the Clinton administration, even though the actual Social Security or Medicare legislations say nothing about such a requirement. A lawsuit aimed at decoupling the two programs failed in 2012, leaving any remedy of the situation up to Congress.
Physician and Arizona state Sen. Dr. Kelli Ward (R) – who is running a primary challenge against incumbent U.S. Sen. John McCain, tells Breitbart News, “Unelected bureaucrats have no business forcing government-controlled healthcare on Americans who choose other options.”
“Holding hostage a major portion of a worker’s lifetime earnings is not only unethical – a fiduciary dollar is a fiduciary dollar – it is also in this case entirely unconstitutional,” Ward adds. “I enthusiastically agree with Senator Mike Lee that all regulatory burdens proposed by executive branch agencies must be approved by Congress as required by Article I of the Constitution: ‘All legislative powers herein granted shall be vested in a Congress’ actually means ALL ‘legislative powers.’”

“Why would the government want to force people to take this Medicare benefit?” Dr. Jane Orient, executive director of the Association of American Physicians and Surgeons and a specialist in internal medicine, tells Breitbart News. “Soon after Medicare was passed, Johnson wanted to force people into Medicare Part A because he wanted his program to succeed and he expected it wouldn’t if people still had the option to purchase private insurance.” 

She continues:

And so Johnson basically talked all the insurance companies into cancelling policies for everybody over the age of 65. People were thus forced into Medicare. The financing of Medicare from the beginning was designed to fail or to be a ponzi scheme. I don’t think they foresaw the dramatic change in the demographics that have occurred, but nevertheless, in the way it was structured, money was never set aside, it was never invested for the people who were putting their money into it. It was always set up to depend upon new taxpayers.

At the time Medicare was signed into law, the average life expectancy was approximately 69 years. Because of advances in medicine, many seniors in 2016 are living well into their 80s and beyond. 

“Longevity has definitely improved and, in addition, the baby boomers didn’t have enough children,” Orient says. “Now we’re down to two or fewer working people supporting each and every retired person. This is a burden the younger generation cannot sustain.”

The idea of opting out of Medicare, however, often raises objections from both those who believe they are entitled to the government-run health care program because they paid taxes into it while they were working, and those who would simply prefer to have the government “take care” of healthcare for them.

Orient says older Americans who believe they are “entitled” to Medicare because they paid into the system aren’t understanding how the ponzi scheme works. In addition, with Medicare about to be even further restricted, current recipients will be in for a rude awakening as soon as next year when the program will feel even more like a burden to be endured.

“People are in denial, particularly about the fiscal realities of Medicare,” she continues. “Bernie Sanders may say that he wants to put everybody in Medicare, and his program has been estimated to cost from anywhere between $2 trillion to $14 trillion. Where is that money going to come from? The fact is it doesn’t exist! It’s hard to believe anyone would have confidence in such a plan.”

Vliet agrees that some are not understanding the realities about Medicare.

“Some people are looking at Medicare as it has been, not as it will be under the new rules, which don’t even really kick in until 2017,” she explains. “When people see that Medicare will be broke and thus will be restricting many more procedures that they may need, as well as hospital readmissions, etc. – and it will get worse when Obamacare’s Independent Payment Advisory Board gets here in 2017 – they will want some other options.”

So make the conscious choice not to be part of the cattle-masses yelling, "Hey, this was promised to me!" while in the remaining human part of your brain you know the program's "sustainability" has long been exhausted.

Medicare: Not set to go kabust in the future, already there

Juniper Research Group's Chris Jacobs, writing at NRO, explains what being gun-shy of the third rail hath wrought:

It’s not that Medicare will become insolvent in ten or twenty years’ time — it’s practically insolvent now. The program’s Part A (hospital insurance) trust fund lost a whopping $128.7 billion between 2008 and 2014, according to the program’s trustees. The Congressional Budget Office projected earlier this year that the trust fund would become insolvent within the decade.

But in reality, the only thing keeping Medicare afloat at present is the double-counting budget gimmicks created by Obamacare. In the year prior to the law’s enactment, the program’s trustees estimated that the Part A trust fund would become insolvent by 2017 — just a few short months from now. But within months after Obamacare became law, the trustees pushed back their insolvency estimate twelve years, from 2017 to 2029.

The trustees’ estimates notwithstanding, Medicare hasn’t become more solvent under President Obama — far from it. Instead, the Medicare payment reductions and tax increases used to fund Obamacare are simultaneously giving the illusion of improving Medicare’s insolvency. When former Health and Human Services secretary Kathleen Sebelius was asked at a congressional hearing whether those funds were being used “to save Medicare, or . . . to fund health care reform [Obamacare],” Sebelius replied, “Both.”

The Madoff-esque accounting schemes included in Obamacare do not improve Medicare’s solvency one whit. In fact, they undermine the program, because the illusion of solvency has encouraged politicians to ignore Medicare’s financial shortfalls until it’s too late.

And ignore it they have. Sanders has proposed a “Medicare for all” plan that a liberal think tank this week estimated would cost the federal government $32 trillion over ten years. Hillary Clinton has proposed creating another new entitlement — this one a refundable tax credit of up to $5,000 per family to cover out-of-pocket medical expenses, for which many of the 175 million Americans with employer-sponsored coverage could qualify. And Donald Trump has run ads, in states including Pennsylvania, claiming he will “save Social Security and Medicare without cuts.”

And Jacobs spells out a key concrete reason why Speaker Ryan must exercise maximum wariness in these get-acquainted sessions with Squirrel-Hair:

By claiming he can ’save Social Security and Medicare without cuts,’ Trump is effectively signing Republicans up for a $28 trillion tax increase to ’save Medicare.’  Little wonder, then, that the Speaker expressed his reluctance to endorse Trump; at their meeting today, they could well address this topic in detail.

This piece was written before Ryan's post-pow-wow presser, which I found encouraging.

Redistribution, by its very nature, must always fail

Very important UT San Diego editorial on FHer-care sticker shock and the coming lopsidedness of the whole thing as young healthy people opt to pay the fine instead of getting insurance.

And as I did a little scrolling through the comment thread underneath, I cam across this report from none other than the Social Security Administration itself warning that neither SS nor Medicare could continue on their present paths of intake and outgo.

Progressives have been promising a unicorns-and-rainbows society for over a century.  They still can't deliver.

He'd put it on a market footing

Yuval Levin at NRO concisely explains how the Ryan-Wyden plan for Medicare would work.  (Ron Wyden, co-author of the plan, is a liberal Dem Senator from Oregon.) 

The government would provide a premium-support payment equal to the second-lowest bid for a package of health-care insurance benefits to a senior in a given region of the country.  All competing insurance companies would know what the package of benefits the government was saying it would pay for were.  If the senior chooses that second-lowest bid, voila, the package is paid for.  If the senior chooses the lowest bid, he pockets the difference. If he chooses a higher bid, which he or she might do for any number of reasons, such as being more comfortable with that insurance company's track record of providing maximum value, or wanting features from a health-insurance policy above and beyond what the government is willing to pay for, he pays the difference. 

It still involves the government, of course, but the free market is setting the prices and encouraging competition.  Costs could be driven down to the point at which government involvement would wither away from no longer being necesary.