In my last post I wrote: “The country’s #1 priority for the next decade should be to get our financial house in order - not coming up with extravagant new spending programs.” An article today shows why:
WASHINGTON – It’s bad enough that Greece’s debt problems have rattled global financial markets. In the world’s largest economic and military power, there’s a far more serious debt dilemma.
For the U.S., the crushing weight of its debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to prerecession employment levels.
The government already has made so many promises to so many expanding “mandatory” programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.
Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economist’s project.
That doesn’t leave room for much else. What’s left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power.
Congress and successive presidents have waited so long to deal with these problems, that drastic measures are now the only options to fix things. The age to receive Social Security and Medicare need to be raised and reductions in the growth rate of benefits is needed. This can be done by increasing benefits each year by a little less than the inflation rate, rather than matching the inflation rate.
Of course if Social Security and Medicare had been converted into private savings accounts many decades ago, we would not be having any of these problems. On top of that, retirees would have a lot more income and could even retire earlier.
I have been warning about all of this for years. But in Chile, things will only be getting better because they converted to private accounts years ago.
Australia too converted to private accounts years ago - and this was done by the left-wing party. But in the US you can’t even bring the subject up without liberals going berserk.
In Singapore they have Medical Saving Accounts, and they work.
One sad thing is that Social Security was discussed as being in the form of private accounts way back at its founding in 1935. Just think what could have been. Instead of the country going broke, we would have trillions saved in private assets with no government obligations. Today’s unsustainable pay-as-you-go Social Security system would have never existed!
As I have so often said here since 2005, we should still convert Social Security and Medicare into private accounts. Here is how. It is never too late to begin. Just like if you run up a pile of debt, it is better to start paying it off now rather than waiting even longer. The process is painful either way - but at least when you address the core problem there is light at the end of the tunnel.
Update: I would now make one change to the reforms that I proposed in 2005. The private accounts should not be mandatory. This was a lesson learned during the recent health care reform debate. The federal government should not be demanding people buy health insurance or save money. But under the NoSpeedBumps reforms, the tax incentives are so strong, that surely over 99% of people would use the savings accounts and buy health insurance. Otherwise they would just be handing money they could have saved to the federal government in the form of income taxes (because the tax rate is flat whether you save the money or not.)