Wednesday, March 26, 2008

Annual Spring Warning on Entitlement Programs Falls on Deaf Ears

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I talk about the structural government imbalances on almost a weekly basis - not directly, but as part and parcel with the world view that we are simply a subprime nation and the effect on our dollar. While the dollar has gotten a lot of attention the past year, the truth is it's been in a swoon for many years. Frankly, anyone who tries to raise a fuss is quietly ignored to the point they feel like they are running into the wall. [Feb 25: I Didn't Realize US Comptroller Resigned] Who will finally stand up and try to do something? My guess - no one will get anything done until its a crisis condition - which means we can kick the can down the road for maybe another decade. And then when it's a crisis we will pay 15x the cost it would cost now to be preventative. But that's the American way - if it's Katrina, if it's bridges, if it's Medicare, if it's mortgage regulation, if it's (fill in the blank) - this is how we do it. Ignore warnings and only address when its an imminent threat.

Quite a sad statement - I only point this out because yesterday was the annual report which was promptly ignored. And we will continue to borrow ourselves into more debt as these entitlement programs suck up more and more of the annual budget. Politicians who appear to only care about their own term have a timeline of 4-6 years - any issue in this country that would create unpopular consequences (higher taxes, reduced benefits) will be ignored as long as it can be pushed out past their 4-6 year term. This seems to be our leadership situation. And why both parties are just a disaster; our presidential election system is based on who said what 9 years ago, or who has better stage presence, or who has more charm, or who has the correct religion, or who is "likable" instead of asking people the hard questions and potential solutions - solutions that will not be to the liking of their electorate.

Some articles of note ....
Washington Post: Spring Forecast? It's Always Gloomy
  • The rites of spring have returned to the capital. The daffodils are blooming. The Easter eggs are rolling. The perch are running. And members of the Bush Cabinet are warning about entitlement calamity.
  • "Rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity," a distressed Treasury Secretary Hank Paulson announced at a news conference yesterday afternoon.
  • Still not alarmed? "This will trigger -- and I want to emphasize again, as Secretary Leavitt has said -- this will trigger a Medicare funding warning," contributed Labor Secretary Elaine Chao.
  • The quartet made it a four-alarm fire, yet even the participants acknowledged that their agitation had become a bit ceremonial. One day each spring, administration officials release the latest annual reports on Social Security and Medicare and warn that the programs will go bust without urgent government intervention. The administration officials, along with their counterparts in Congress, then spend the rest of the year achieving nothing to fix the problem. (Now that is a perfect summary!)
  • In spring 2007, they announced that the Medicare trust fund would run out in 2019 and Social Security in 2041. Yesterday, they announced that the Medicare trust fund would run out in 2019 and Social Security in 2041.
  • It's a bit of an exaggeration to say nothing happens with Medicare. Actually, it gets worse. The projected solvency of Medicare has shrunk by six years during President Bush's tenure. Bush's prescription drug benefit has added another $915 billion in costs to the Medicare program -- although Leavitt cheerfully pointed out yesterday that the hole Bush created is "about $117 billion less than we felt it would be last summer."
  • Though Democrats dispute the urgency and magnitude of Social Security's problems, there can be no doubt about Medicare's woes; its payouts are forecast to exceed tax revenue starting this year.
NYTimes: Outlook Remains Bleak for 2 Programs
  • The Bush administration issued a grim report on Tuesday on the financial outlook for Medicare and Social Security, but said the condition of the programs had not significantly deteriorated since last spring.
  • The report may put pressure on the presidential candidates to say what they would do to rein in health costs and to shore up the programs, which serve more than 50 million people. The candidates have largely avoided these questions, but the next president will not be able to escape them.
  • The Democratic presidential candidates have set forth proposals to provide health insurance for all Americans, but have said less about how they would finance the costs of Medicare, for people who are 65 and older or disabled. Efforts to squeeze even modest savings from that program typically provoke a frenzy of lobbying on Capitol Hill.
  • But the report, prepared by government actuaries and economists, said these projections were unrealistic because they assumed that Medicare payments to doctors would be cut by more than 10 percent in July and by an additional 5 percent in January 2009 and in each of the next seven years, for a cumulative reduction of about 40 percent. (holy smoke, those are some laughable assumptions) In fact, Congress usually intervenes to block such cuts and, in recent years, has approved small increases for doctors, thus increasing the costs of Part B and beneficiaries’ premiums.
Forbes: Cry Medicare
  • While the U.S. Federal Reserve is rushing to bandage up the housing crisis, the trustees of Medicare and Social Security ponder a much bigger and perennially ignored problem: the looming deficits facing government entitlement programs.
  • Without sweeping reform--an unlikely prospect in an election year--the next president will see similar numbers in 2009. But by then Medicare will be only one year away from cannibalizing its trust fund.
  • Critics of the system suggest the situation is even more untenable. The trust funds for the entitlement programs consist of special-issue bonds from the U.S. Treasury. And when the Treasury has a financial obligation it’s the taxpayers that foot the bill.
  • Today, Medicare, Medicaid and Social Security consume under 10% of the gross domestic product. But if these trend lines don’t change by 2030, the year that a child born today will finish college, then the cost of the entitlements and interest payments on debt would consume the entire federal budget. (think about that... it's only 20 years from now - in most of our lifetimes)
  • 80 million people will soon be getting old enough to claim benefits. Either the cost of the entitlement shrinks, or the government--and therefore taxpayer--needs to foot the bill.
Our 3 main candidates responses? A lot of hemming and hawing. The typical rhetoric. And even if they do have plans they have to deal with a Congress that is so polarized, they refuse to work with each other UNLESS its a common shared goal of getting re-elected (i.e. send money to people to "stimulate" them to re-elect them). Just sad.

We'll check back in 365 days when I type the same message.

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