This Week’s Mtg: Do We Have To Cut Entitlements? (9/9/10)

Debt and deficits seem to be the central preoccupation of political elites and regular people these days.  But, a lot of the discussion in the media is just useless.  They never explain the basics: (1) What’s driving deficits, (2) what the downside of so much debt really is, or (3) what choices we actually face for reducing it.  Instead, we get think-of-the-children platitudes and arguments couched in terms of fiscal rectitude that are really about other things entirely, like philosophical statements about the role of government in general. 

I’ll start us off by outlining a few basic facts in each of the three areas above, and then we can discuss the hard part — how do we choose a path given so much disagreement?   My bottom line is that there is no arithmetic that mandates any particular cut to any particular program, or any particular tax increase for that matter.  These levels of debt are unsustainable, but the decision on what to do is political.  We can choose our destiny based on national priorities, just like we always have done.

After my introduction, I can explain how Social Security and other entitlement programs work, if people want.  There are a lot of misconceptions about Social Security in particular.  See post below this one for links to basic facts about Social Security.

Links:  I’m low on time this week, but here’s one chart for each of the three topics I’ll cover:

How Bad Is the Debt and What’s Causing It?

Takeaway:  Main causes are the Great Recession and the Bush tax cuts passed in 2001-03.  Defense spending, Obama stimulus, others have smaller effects.  Not shown but key: After about 10 years, exploding health care costs will be the main driver of federal deficits (i.e., the yellow part is going to start ballooning by itself).

What To Do:  Spending Side and Tax Side. 

Takeaway:  Most of our taxes go to three things: Social Security, defense, and health care.   If you want to reduce federal spending you must pick at least one — including health care, the big driver after the recession and our current wars end.  Also, there are two ways to reduce government health care costs: stop paying for so much health care by shifting more costs onto people and families (Republican solution), or pay for more or the same share of people’s health care as before but drive down the health care costs themselves (Democrats’ way).

Revenue Sources:

Takeaway:  Most taxes come from either income tax (80% of which are paid by the most well-off) and payroll taxes (dedicated to Social Security and Medicare).  The third largest source of “revenue” is borrowing; i.e., taxes deferred to the future.


One response

  1. […] don’t forget these old posts of mine on taxes, but especially this one, Who Pays For Government?. Categories: […]

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