Amid all the jeremiads about death panels, funding for abortion, and health care for illegal immigrants, there is in my view one criticism of the Obama health insurance reform program coming from the right that is really worth listening to, and that is the question of financial impact. Even if you accept that the mess the United States is in is due primarily to the astonishing financial irresponsibility of Obama’s predecessor, this does not necessarily invalidate the issue.
Nevertheless, while the cost of health care coverage is inherently difficult to control, the fact remains that the president has (i) designed this bill from the outset to be a cost control as well as coverage measure; (ii) gone to great effort to provide ways of ensuring that these costs will be monitored and addressed if they continue to rise; and (iii) responded positively to suggestions from Blue Dogs and the two or three constructive Republicans in the debate that provide innovative ways of bringing down costs. To accuse the president of failing on this count smacks somewhat of partisanship, then.
That said, whether this bill passes or not (and I think it will), deficits will remain a number one issue for the United States going forward. Moreover, this problem will have to be dealt with in an extremely shaky economy, one where increasing the cost of doing business or adding extra burdens to middle class families may run the risk of plunging the nation back into recession. Balancing the budget in the best of times is hard enough – Bill Clinton needed the tech boom to do it. Doing it in the midst of severe financial contraction is nothing short of a nightmare.
So, let’s say that all politics goes out the window and I’m made dictator! Aside from health care reform, how might we begin to manage the deficit down over the next period while minimizing the negative impact of spending cuts and tax rises on the economic performance of the country?
First, a BTU tax is out the window. Or rather, I think it’s a great idea but it would have to be accompanied by matching reductions in taxes on incomes or it will put thousands of businesses and families into difficulty. It may be that raises in the tax threshold on gas consumption actually encourage people to be more efficient and therefore don’t have a major impact on business or personal incomes. It certainly seems to be the case that the extremely low gas prices in the United States correlate with extremely wasteful usage. But we can’t necessarily assume that this is true. So, the shift to a low carbon economy should change incentives rather than the overall tax burden and can’t be assumed necessarily to deal with deficit issues.
Second, foreign policy. First, let’s get this in proportion. According to the Congressional Research Service, since 2001 the operations in Iraq, Afghanistan and associated war on terror costs add up to $864 billion. Three quarters of this went on Iraq. So this adds up to roughly half this year’s deficit, and is more or less the same as the money spent on the bailout (though, of course, we hope to get the latter back.) A lot of money, but certainly not a solution on its own. (Side issue: a huge amount of this is about putting troops in the field. Obviously if you bring them home you need to find them jobs, etc. But this, in terms of relative cost, is nothing compared to having a soldier at war so we can assume that, whatever the geopolitical consequences might be, bringing troops home doesn’t have a major impact on the domestic economy.)
Predictions on the American wars for 2010-2019 range from $388 billion to $867 billion. Let’s say that you can keep to the low figure. That’s a saving of $500 billion over ten years, or $50bn a year. Moreover, there are all sorts of hidden costs to this which can’t be budgeted for but need to be paid: war fighting produces spending in other departments to cover veterans’ affairs, pensions, and the like; and we’re paying interest on debts accrued from past wars. But let’s take the $50bn figure to be conservative.
Second, mass amnesty for illegal immigrants. Wikipedia estimates there are 15-20 million illegal immigrants in the US. Let’s assume, for the sake of argument that there’s 15 million and 60 percent of them are productive workers and that these are all working for minimum wage (which I think are fairly conservative estimates.) Minimum wage is $7.25/hr, for – let’s say – 40 hours a week, 50 weeks a year. In truth it’s likely to be more since illegals generally work longer hours than legals. This gives an income of about $14,500 per person, which yields $1,757 for the government in income taxes. For nine million workers, that’s about $16bn annually of extra income.
Third, legalize all drugs. The Office of National Drug Control Policy estimates that Americans spent $66bn on illegal drugs in 1998. (I can’t find more recent figures from a quick search. This isn’t supposed to be a policy paper, you know.) Let’s add a sales tax of 8%. Meanwhile, federal, state and local governments spent about $30bn a year fighting the drug war. Finally there’s another $6bn a year spent on imprisoning people for drugs related offences. Together you get an extra income of about $5bn and cost savings of around $36bn. Let’s play it safe and add an extra few billion in costs to treat addicts and assume that the revenue from sales is proportionate to the health care costs. You’ve got yourself $36bn to play with.
Fourth, raise the mandatory retirement age and fix it in proportion to average life expectancy. Despite being healthier and wealthier, Americans today retire on average six years earlier than they did in 1940. This is crazy!
I’m struggling to find good numbers on this and not lose the whole of the day to this post, but Heritage estimates the social security shortfall will reach $90bn by 2015, and I’ve seen people quote GAO figures saying that raising the age of retirement would cover the shortfall. So let’s assume $90bn savings here. And let’s assume conservatively that the increased income from enlarging the workforce will be offset by the transition costs and growing number of people claiming disability benefit.
Together, these four proposals alone add up to $192bn annually in cost savings and revenue increases, or about 25% of the budget deficit.
These suggestions take no account of non-monetary effects of particular policies. Some of them might be hugely destructive socially or geopolitically. But since the argument is supposedly that balancing the budget should take precedence over all other things, that doesn’t matter, right?
My point is not that we should necessarily do these things, but to highlight the fact that the deficit question is inevitably tied up with priority. A genuinely tough decision is not like the ones that have been made in the past thirty years, when most presidents have chosen to shift between spending and borrowing, for instance. A genuinely tough decision is between two things when both are desirable. It’s these kind of tough decisions that the US will be facing over the next generation.
Think Of the Children
52 minutes ago
