Question

Research your home state’s budget. What is your state policy on having a balanced budget? During the last budget cycle, what were the major item lines to get cut? How did those cuts affect you, your family, your community?

Answer 1

The problem is too much government spending. Americans have been enjoying elevated government spending since FDR was elected President and implemented his large scale social programs which were then followed up with expanded or new social programs by other Presidents and Congresses in order to buy votes. We sometimes liked the benefits of increased spending, but we don't like to pay for it. The reality is that the American public and political class has to get with the program and realize that we have to pay for the government we have first before we discuss creating new programs such as “universal” healthcare, universal college educations, and other such programs.

It is acceptable to run budget deficits as long as you stabilize the national debt at a healthy level. For example, if the U.S. runs a budget deficit every year but stabilizes the national debt at 50% of GDP it would be acceptable and not put the nation on a path to fiscal pain. However, the U.S. government has exerted almost no control over the growth in federal spending. Spending often exceeds inflation by 4, 5, 6, and even 7% most recently despite the economy growing at a 3% rate. Spending growth that is almost double real GDP growth is not prudent. That kind of fiscal profligacy is a recipe for protracted pain in the future. Running deficits of this size during an expansion is not the right way to go.

The majority of the federal budget is comprises of mandatory spending, which is codeword for entitlement programs. Entitlement programs are Social Security, Medicare, and Medicaid. The uncontrolled spending growth of those programs and their structural deficiencies are entirely responsible for today and tomorrow’s humongous budget deficits. Despite what you may think, Social Security and Medicare are entitlement programs. Yes, it is true that taxes are collected from our income to pay for them. However, the reality is that those programs are used to redistribute income from young to old and rich to poor. The programs are paying out more in benefits than they are taking in from payroll taxes. If the programs aren't altered with fundamental reform, U.S. economic vitality and fiscal health will suffer. Economists such as Milton Friedman have constantly lamented at the structural problems that these entitlement programs have. They simply don't work and they are destroying the health of the country. Medicaid on the other hand is a welfare healthcare program that covers the poor. The lack of spending control has led that program swallowing a large portion of the budget and causing state governments severe strain.

The reality is that we have to make tough decisions about entitlements, but nobody wants to do that. If we undertake bipartisan entitlement reform, we can salvage some aspects of those programs while improving the fiscal health of the nation.

Personally, I am in favor of phasing out Social Security and Medicare over 20–30 years and doing the same for Medicaid over 15 years or so.

Possible solutions for Social Security:

• Transitioning the system to private retirement accounts over a couple of decades.
• Increasing the retirement age.
• Freezing payouts and only adjusting for inflation.
• Eliminate the autopilot spending increases.

Possible solutions for Medicare:

• Transition to a healthcare voucher system for Senior Citizens.
• Increasing the retirement age.
• Freezing payouts and only adjusting for inflation.
• Eliminate the autopilot spending increases.

Possible solutions for Medicaid:

• Increase eligibility requirements.
• Freeze spending and switch to a block grant system.
• Totally eliminate federal Medicaid and allow state governments to implement the healthcare system that works for them.