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Cut the deficit, but not my benefits!

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February 12, 2010 – Comments (28)

Bruce Bartlett raises some good questions about whether people really want a smaller government, including those in the "tea party" movement. 

First, he demonstrates that people don't know where most of the money goes: 
 
"Many polls show that the vast majority of Americans have no idea of the true composition of federal spending. According to a recent Rasmussen survey, just 35% of Americans know that Social Security, Medicare and national defense spending constitute more than 50% of the federal budget. Polls consistently show that most people grossly overstate the percentage of foreign aid in the budget. A 2001 poll showed that half of all Americans thought foreign aid comprised at least 20% of the budget, and the average response was 25%. In fact, foreign aid is less than 1% of the budget and has been for decades.
 
"Consequently, most people tend to think that balancing the budget is a relatively easy task just requiring political will, something that would not affect them personally. Even members of Congress often give the impression that all we have to do is eliminate earmarks and pork barrel spending and that would be enough. In fact, according to Citizens Against Government Waste, a watchdog group, there was only $19.6 billion of pork in the budget last year, less than 1% of federal spending.
 
"The truth is that the big money is in two federal programs: Social Security and Medicare. However, it is extremely rare to hear any of those concerned about federal spending target these programs for cuts. One reason is that Medicare alone covers about 45 million people, 22% of the voting-age population. Moreover, according to Census Bureau data, those over age 65--virtually all of whom qualify for Medicare--vote in the highest percentages of any age group. Consequently, any effort to reduce benefits for this population is going to confront strenuous opposition, which explains Republican pandering on Medicare during the health care debate."

Bartlett then goes on to explain a plan by Rep. Paul Ryan (R-WI), which aspires to eliminate the federal deficit by 2080:

"In short, the core of Ryan's proposal is to implement George W. Bush's plan to privatize Social Security, which got virtually no public support even when the stock market was booming, and essentially abolish Medicare altogether while raising taxes on the health benefits of most workers. He basically assumes that the market for health insurance would somehow adjust to prevent a significant cut in the quality of health care."

How many Americans will support that? Not many.

Bartlett then offers some food for thought to the tea party crowd: 

"In my opinion, support for the Ryan plan must be the minimum requirement for anyone who considers themselves members of the tea party brigade and any politician seeking its endorsement. If those like former Alaska governor Sarah Palin, the current darling of the tea party crowd, are unwilling to immediately and unequivocally endorse the Ryan plan or put forward something equally serious and comprehensive, then in my opinion they have no credibility on the budget and no right to oppose the sorts of tax increases that I believe are unavoidable.

"I think it is irresponsible to say, as almost all tea party goers do, that they are unalterably opposed to tax increases without specifying spending cuts--large cuts in popular programs that go far beyond foreign aid, earmarks and even a budget freeze. And if they are serious they must admit that coming anywhere close to budget balance cannot be done without slashing Social Security and Medicare benefits. There's no way around that and anyone who says so is either ignorant or a fool."

I personally could live with some of Ryan's proposals if it guaranteed my kids would inherit a future America that doesn't look like nowadays Greece. But I don't think you'll get many voters, and thus Congresscreatures, on board. 

Robert Brokamp is the senior advisor for The Motley Fool’s Rule Your Retirement service.

 

 

28 Comments – Post Your Own

#1) On February 12, 2010 at 12:59 PM, russiangambit (29.30) wrote:

> Polls consistently show that most people grossly overstate the percentage of foreign aid in the budget. A 2001 poll showed that half of all Americans thought foreign aid comprised at least 20% of the budget, and the average response was 25%. In fact, foreign aid is less than 1% of the budget and has been for decades

I run into this thinking a lot. I think we even had a rather heated discussion on the subject here on CAPS where I was saying that US could help other countries mor tbhroughc harity and garner more goodwill that way instead of supporting huge military all over the world.

On the other hand I think some of military spending could actually be classfied as foreign aid - building infrustructure, providing protection, providing local employement. But again, then it should be presented that way not only to americans but also to foreigners.

 

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#2) On February 12, 2010 at 1:00 PM, russiangambit (29.30) wrote:

As for SSN, it should've never been a part of federal budget as a sruplus or as an expense. It should've been a separate self-sustaining pension program. That is how it was designed and sold to the population in the first place.

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#3) On February 12, 2010 at 1:04 PM, RonChapmanJr (74.46) wrote:

I'd be happy if they cut all the entitlement programs yesterday.  Perhaps one day we will get some politicians with a backbone and have a population ready to make some serious changes, but I doubt it.  Guns and grub have been some of my favorite investments recently.

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#4) On February 12, 2010 at 1:13 PM, Melaschasm (55.51) wrote:

Bruce might be right about the American people not wanting to make the tough choices needed to pay off the debt.

However, I have not seen any credible evidence that the Tea Party people want spending increases and tax cuts.  From everything I have heard them say, it appears the Tea Party people want cuts in both spending and taxes.

If anything the criticisms that I have most often heard about the tea party people is that they are right wing extremists who want to deny government aid to the poor.

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#5) On February 12, 2010 at 1:17 PM, lemoneater (78.14) wrote:

Part of the reason why I'm learning to be a better investor is because I'm not certain SS will still be around when I'm old. Actually some tea party goers are educated enough to know that balancing the budget would necessitate cutting SS and other benefits. http://www.constantconservative.com/2009/its-for-the-children. I would like the opportunity to opt out now and be responsible for my own retirement.

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#6) On February 12, 2010 at 1:20 PM, devoish (98.26) wrote:

Russian,

Technically SSN is seperate from the Federal budget. It's connection is that it invests in US backed securities (treasuries) rather than risking it all in a stock market.

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#7) On February 12, 2010 at 1:21 PM, davejh23 (< 20) wrote:

"As for SSN, it should've never been a part of federal budget as a sruplus or as an expense. It should've been a separate self-sustaining pension program. That is how it was designed and sold to the population in the first place."

We could easily phase out Social Security entirely over the next 30-40 years.  It wasn't designed as a permanent program in the first place.  It was designed as a forced retirement plan with the retirement age set above the average life expectancy at the time.  If maintained in it's original form it would be self-sustaining and eligibility would start around age 80...most Americans would never collect a dime.  Most young workers would favor privatizing Social Security over contributing hunders of thousands of dollars over the course of their careers and never seeing anything in return.

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#8) On February 12, 2010 at 1:29 PM, davejh23 (< 20) wrote:

devoish,

Money has been "borrowed" from Social Security for other government programs for years.  This hasn't been through investment in Treasuries, so there is no real obligation to pay it back...the US unfunded obligations to Social Security are not included in the national debt.  The national debt would look MUCH worse if Social Security funds had simply gone directly to Treasuries.  A report this week showed that US debt to GDP (including unfunded obligations) is 400%+...I don't remember all of the developed countries included in the report, but several developed countries face the same kind of debt issues.

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#9) On February 12, 2010 at 1:51 PM, stan8331 (97.07) wrote:

It's not realistic to think we could eliminate Social Security entirely, but it could be scaled back drastically to serve as a safety net for the poorest retirees.  Even if we did eliminate SS entirely, though, that's still not going to help our problem with healthcare inflation. 

We're wasting far too high a percentage of GDP on healthcare, especially given our sorry performance in standard measures of health versus other developed countries.  Neither the Republicans or Democrats show any willingness to find a way to make the deep healthcare cuts that will eventually have to be made.  Everyone wants to have their healthcare cake and eat it too, while blaming all our problems on those other folks.

Unless we can set aside the political sniping and somehow become serious about the issue as a society (yeah I recognize the absurdity of that statement), the end result will not be pretty.

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#10) On February 12, 2010 at 2:18 PM, Harold71 (21.79) wrote:

If those like former Alaska governor Sarah Palin, the current darling of the tea party crowd,

 

Thank you for pointing out, in that one simple statement, that the Tea Party movement has been hijacked.  The Tea Party ain't what it used to be. 

There's trouble brewing between the Ron Paul libertarians who staged the the first modern tea party in 2007 by dumping tea into Boston Harbor, and the neocon war hawks led by Sarah Palin who are furiously trying to hijack their message.

The original, libertarian movement, wants extremely small government (low spending) AND low taxes.  Not some kind of free lunch.

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#11) On February 12, 2010 at 2:24 PM, ChrisGraley (29.75) wrote:

Cut the deficit and my benefits please.

I would prefer not to have the government as my daddy.

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#12) On February 12, 2010 at 2:30 PM, russiangambit (29.30) wrote:

> We could easily phase out Social Security entirely over the next 30-40 years.  It wasn't designed as a permanent program in the first place.  It was designed as a forced retirement plan with the retirement age set above the average life expectancy at the time.  If maintained in it's original form it would be self-sustaining and eligibility would start around age 80...

It make sense , of course. But I have hard time imagning 75 y.o. people in the workplace. First of all, they will crowd out younger workers and second is they can't be expected to work 8 hours each day. They need something more flexible. But in the current environment who would even consider hiring you if you are 75 y.o.? Not even talking about flexible schedule. What if theya re in early stages of dementia? Most of these people are too frail to work, so they would be on disability anyway.

In other countries old people live with families. May be we should be giving people a large tax break if they support an elderly parent and provide for them ? Something substantial like 20K tax break?

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#13) On February 12, 2010 at 2:41 PM, Melaschasm (55.51) wrote:

I disagree with the objections to Sarah and the tea party.  The tea party was specifically formed to oppose high taxes and government spending.  It was not a movement that officially took a position on abortion or war, or whatever other non fiscal issue.

Since Sarah Palin wants smaller government, she is a natural ally of the tea party movement.  However, she is not now, and likely will never be a leader of the tea party movement.

However, many people would like to drive a wedge between libertarians and conservatives in order to promote higher taxes and more government spending.  I think it would be a mistake for these two groups to split their votes, and allow candidates who support higher taxes and spending to win the upcoming elections.

 

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#14) On February 12, 2010 at 3:15 PM, Turfscape (42.51) wrote:

Melaschasm wrote:
"However, she is not now, and likely will never be a leader of the tea party movement"

You speak as though there is an organized group. She is speaking to and on behalf of "the tea party movement" as far as all media goes.

"However, many people would like to drive a wedge between libertarians and conservatives in order to promote higher taxes and more government spending.  I think it would be a mistake for these two groups to split their votes, and allow candidates who support higher taxes and spending to win the upcoming elections."

Yeah, like with G.W. Bush? When Libertarians voted conservative to reduce the size of government? And lower spending? And reduce invasive laws that impede on civil liberties? How'd that work out?

I despise the Libertarian party and the tea party movement solely because they are completely and thoroughly hypocritical. Want to call yourself a libertarian? Vote for Libertarians, not Republicans and religious zealots who happen to share a dislike for liberals!

I have a modicum of respect for the Green Party because they actually voted for and supported a third party candidate. Their platform may be  half-baked, at best...but at least they truly walk the walk.

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#15) On February 12, 2010 at 3:29 PM, Harold71 (21.79) wrote:

The tea party was specifically formed to oppose high taxes and government spending.

Agreed.  The problem is that the neo-cons oppose high taxes and yet, simultaneously, want the wars to go on forever.  They don't really want to give up high spending, and their track record shows this.

The libertarians want a government that protects liberty, not one that precipitates no-win wars all around the world.  They also want very low taxes.  This is logical congruence of ideas.  (Wonder where I stand, aye?)

I have no problem with true conservatives.  Unfortunately, there are very, very few of them left.  Most of them have morphed into neo-cons, which are just another group of free-lunch advocates that speak out of both sides of their mouths.

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#16) On February 12, 2010 at 3:40 PM, Melaschasm (55.51) wrote:

Yeah, like with G.W. Bush? When Libertarians voted conservative to reduce the size of government? And lower spending? And reduce invasive laws that impede on civil liberties? How'd that work out?

G.W. Bush ran on a platform of increasing spending, thus he was not a conservative, but rather a "compassionate conservative".

The tea party activists should vote for a small government candidtate no matter what party the candidtate joins.  If a tea party advocate votes for a big government tax and spend liberal (of either party), because of non fiscal issues, that is their choice, and the consequence will be more big government liberalism.

I don't see why it is so terrible that one of several speakers at the a tea party convention wants to reduce the size of government, but happens to support some issues that libertarians do not agree with. 

PS I hope that the republicans can find a better presidential candidate that Sarah Palin in 2012.  But I would rather have her than a big government tax and spend republican as the nominee.

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#17) On February 12, 2010 at 4:09 PM, starbucks4ever (97.24) wrote:

I belong to the majority who thinks the deficit can be reduced to zero without cutting any entitlements. There are just so many fat cats to go around...

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#18) On February 12, 2010 at 4:40 PM, davejh23 (< 20) wrote:

"I belong to the majority who thinks the deficit can be reduced to zero without cutting any entitlements. There are just so many fat cats to go around..."

US debt to GDP, including unfunded obligations, is 400%+...most of that is future entitlement spending.  Those unfunded obligations are going to be tapped in large part over the next 2 decades, and entitlement payments could exceed total federal revenues.  It's possible that the deficit could be reduced to zero without cutting any entitlement, but only if all other gov't spending equals zero.  Within the next decade, interest payments on the national debt could exceed 50% of total federal revenues...so it's not likely that even 25% of revenues would be available for entitlements...that's a massive shortfall.  Unless we have massive unexpected productive growth over the next decade, or are able to increase taxes 300%, I'm not certain how we can avoid cuts to entitlement spending.

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#19) On February 12, 2010 at 4:53 PM, Turfscape (42.51) wrote:

Melaschasm wrote:
"G.W. Bush ran on a platform of increasing spending, thus he was not a conservative, but rather a "compassionate conservative"."

That's sort of my point...platform is completely irrelevant to conservatives and "Libertarians". They all just vote for Republicans regardless of voting record, campaign promises or actual actions.

I'm not trying to excuse Democrats from their behavior...but they mostly tend to do what people expect them to do. And Liberal groups are usually the first to protest Democrats when the don't follow through with being liberal enough (see MoveOn.org for proof). 

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#20) On February 12, 2010 at 5:55 PM, Melaschasm (55.51) wrote:

While that might be true of some libertarians and conservatives, it is not always true.  In 2006 several of my conservative republican party member friends voted for Democrats, because they were campaigning as if they were more conservative than their republican opponents.  Unfortunately in this particular case those Democrats have voted as if they are more liberal than the Republicans they replaced.

For the past two decades, I have not had the opportunity to vote for a single politician who agrees with all of my political opinions.  So I am forced to vote for the best candidate I can find.  It is not party, but rather political positions that determines the votes of many people. 

If I look at the 5 main issues and I agree with Bush on three and Algore on two, for whom should I vote?  Or to your point about Bush if I think we should cut taxes and cut spending, and Bush wants to cut taxes and increase spending, while Algore wants to increase spending and increase taxes, who should I support?

If in 2012 I am choosing between Obama, Palin, and a Libertarian, and I disagree on one issue with each of these candidates, who should get my vote? 

When I decide who to vote for, I look at the positions the candidates take, as well as the chances of that person being elected.  I know many people who do the same thing.

During the primaries I will support the candidates who best reflect my personal preferences.  I will recommend that democrats vote for the Democrat that best represents me, that republicans vote for the Republican who I like best, and that Libertarians vote for the one closest to my values.  In November I will recommend that everyone votes for the candidate that I prefer, no matter which party label is attached.

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#21) On February 12, 2010 at 5:56 PM, fmahnke (90.14) wrote:

To suggest that a tea party menber who is against privitizing SS, isn't consistent with idea of small gov't doesn't make sense.

Although SS is an entitlement for many, most of the reitrement benefits are paid to people who contibuted to this fund their whole life, The gov't has used the money that is owed to the people.

The Obama budget has a massive dicrentionery pending increase. The avg gov't worker is now paid substanially more than their private sector counterparts, better benefits more pay raises and for less hours worked, less stress and less risk.

I'm OK if I were a fair settlement on my SS. But I fear for others less able to make their money mgt. decisions. Cut benefits for the alcohol and drug dependent "disabled" and stop sending checks to dead people, sure, but don't cut benefits to the people who paid in.

You could cut all gov't salaries by 10-15pct and reduce most departments by this amount and you'd hardly lose a beat.  Less gov't waste can reduce the debt

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#22) On February 12, 2010 at 6:06 PM, Turfscape (42.51) wrote:

"If I look at the 5 main issues and I agree with Bush on three and Algore on two, for whom should I vote?  Or to your point about Bush if I think we should cut taxes and cut spending, and Bush wants to cut taxes and increase spending, while Algore wants to increase spending and increase taxes, who should I support?"

I'd say you shouldn't vote for either Al Gore or G.W. Bush in that scenario...but, I'm weird like that. I hold to my principles and vote as I truly believe. I don't subscribe to the "lesser of two evils" or "devil you know is better than the devil you don't" philosophies.

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#23) On February 13, 2010 at 8:30 AM, AbstractMotion (53.48) wrote:

A few points of clarification:  The actual "trust fund surplus" that SS runs is actually recorded as part of the national debt, but it is realistically just backed with special issue US treasuries so the tax payer is on the hook for the funds regardless.  I'm not sure how the plan was sold to people but it's never been anything resembling a good pension plan or annuity.  It is essentially a ponzi scheme in it's current form, later generations pay for previous ones and usually in excess of what the past generation contributed itself.  This is why the program is ultimately going to end up in trouble.  

 

Personally I think we need to wind down or remove the program.  I don't think the privatization plan was sold well at all, "privatization" is a bad slogan to start with.  When I think privatization, I think of something like Medicare Advantage, where the government comes up with convoluted scheme to take tax money then give it to a private company and remove the balancing forces of the market from the equation.  You should simply be able to opt out from the program if you'd like or they should roll off the actual retirement benefits portion of it into a GSE.  I'm fine with some of the programs remaining in their current forms, disability insurance and benefits to widows with children being the two that come to mind.  If it were clearly explained to people that they could simply opt out of the program or manage their own money(i.e be paid more).  I don't know that I'm comfortable with the idea that it would have to put into any kind of special account, as I do think that the finance industry exploit that.  Simply removing the bulk of FICA taxes and allowing higher contributions to IRAs or creating a similar exception for certain annuities would help substantially though.  I doubt it will happen though, the fact of the matter is there's going to be a huge number of people at or near retirement age in the next 10 years and statistically they vote in much higher numbers then everyone else.  We're more likely to see the FICA tax hiked up slowly past 20% then we are to see social security and Medicare wound down to the type of fall back plans to keep those who were both elderly and destitute off the streets.  I'm not really looking forward to paying for someone else's retirement at this point though.

 

 

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#24) On February 13, 2010 at 8:42 AM, MioMiaMamma (< 20) wrote:

"IMPEACHMENT TIME" is here. If we don't we are doomed.

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#25) On February 13, 2010 at 11:07 AM, Bkeepr100 (< 20) wrote:

Take the Foodstamps program(s) out of the Agricuture part of the US budget and watch that area shrink in size dramatically.  There are many areas of the Federal budget that hold social programs that are only semi-related to that area.

 

The country is broke!  Why do think they are running the monetary printing presses at warp speed at the Fed??  To be able to continue to prop up these wealth draining parasitic programs and people. 

I will most likey be accused of sounding like Aldsty, but the finacial machine is at the breaking point.  Every Fiat currency system ever tried, colapses from inflation factors in less than 100 year timespan.  This leads to a devaluation as the "new" currency is forced on the population, often overnight. This just happened in North Korea not too long ago.

F.D.R. stole the gold from America to do the same thing during the great depression.  Report this comment
#26) On February 15, 2010 at 4:17 PM, Melaschasm (55.51) wrote:

Turf, I respect your principled stand, but I think voting is to important for me to refuse to support any candidates because they do not agree with me 100%. 

I would rather vote for someone whom I agree with 75% of the time, than to not vote, and end up being represented by someone I agree with 15% of the time.

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#27) On February 15, 2010 at 5:59 PM, Turfscape (42.51) wrote:

"I think voting is to important for me to refuse to support any candidates"

I would never wish that you not vote. It's only a two-party system if you give in to the idea that it's a two-party system.

 

Turf "don't blame me, I voted for Kodos" scape

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#28) On February 20, 2010 at 12:35 AM, sctg3761 (< 20) wrote:

Tie taxes specifically to their benefits for entitlements, which is already sort-of being done for things like Social Security. Thus, consider SS and healthcare separate issues with separate taxes, and adjust benefits and taxes accordingly. I think a "defense tax" would be appropriate - if you support the troops and defending the country, see how much this specifically costs. Citizens will thus become more thoughtful and analytical - and less emotional - when deciding whether or not to support a war.

I think of Social Security (specifically SSI) as "Didn't Save Enough for Old Age, or Sh!t Happened, Insurance". By eliminating the regressive nature of FICA - currently capped at $6,621.60 for all incomes above $106,800 - a lot more funds will come in. I think this change is fair to high-income earners because if they need the insurance (their investments tank, they go bankrupt, etc), then they'll get it.

If you let people opt out of SS (or privatize), are you going to refuse to help them when they mess up their own retirement savings? If YES, then OK, go ahead and privatize or allow people to opt out - but I'll stay in the system because I know I'm not Warren Buffett. However, if you are NOT willing to let Grandma starve because she's bad with her money, then you are not *truly* in favor of privatization.
 

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