Here's How to Cut Government Spending to 15% of GDP...Overnight

By Frank Hill






Reform SS and Medicare.

Today.

Make them analogous to 401(k) plans or defined contribution programs in the private sector.

Make them live up to the 'truest' definition of the words 'trust fund' just like we want every banker to do nowadays post-economic meltdown.  Make them the 'true' trust funds that every politician on both sides of the aisle who have done absolutely nothing to fundamentally reform them have claimed them to be over these past 52 (Medicare) to 78 years (SS)...


You would immediately reduce the 'share' of federal spending relative to the size of the American economy to 15% or less.  When the economy recovers, it could fall as low as 10%.

Now wouldn't that be special?

Let's think about it together.

Social Security alone accounts for about 5% of GDP today.  Medicare/Medicaid combined account for another 5%+ of GDP and is expanding quickly.

Both represent the largest portions of the federal government and they are only going to grow and consume more and more tax dollars each and every year going forward as the huge glut of Boomers retire.

After all, both of them 'supposedly' have 'trust funds' into which payroll taxes are deposited by each and every person and then taken out when that person retires and makes a claim on 'their' Social Security and Medicare 'investments'.

Why not just fulfill the promises of politicians ever since FDR and LBJ and go whole hog and make both SS and Medicare 'true' trust funds, off-budget and fully vested for each and every American worker?

If Bernie Madoff got sentenced to serve 150 years for swindling thousands of folks with his Ponzi schemes, then what sort of sentence should every politician serve for deliberately misleading hundreds of millions of Americans over the past 78 years from the truth about both the Social Security and Medicare 'trust funds'...as in 'there are none'?

How about '16 trillion years in prison' just to acknowledge the fact that they also managed to run up a huge debt at the same time they were deliberately misleading the public on the 'trust funds' (sic)?

Had we Americans screwed up the political courage in 1980 as the people in Chile did and converted to a market-based plan on Social Security at least, every Boomer would be retiring now with a substantial next egg plus a one-time cash benefit of perhaps $100,000 or more on which to live comfortably in retirement.

Instead, now you are 'looking forward' to about $1700/month in SS benefits.

There.  Don't you feel better about that?  That is the government 'taking care of you' instead of letting you put your money into the market and seeing what the free enterprise system can return to you over the course of a 45-year working career.

Assuming we had converted to a 401(k) type of defined contribution model for SS in 1980, all of the Boomers would be retiring  in far, far better shape than they will today.  Close to 50% of them will retire with hardly any other savings or pensions other than what they will receive in SS benefits so we can't just cut and run and leave them on the streets begging for food on the corners.

But not only would converting SS into a true trust fund off-budget be better for the US citizens, it would also  'lower' the federal government share of GDP by close to 5%.

Same with Medicare.

Instead of the confusing and misleading 'trust funds' (sic) which are supposed to fund Part A, Part B, Part D and soon to be Parts E,F,G,H,I,J,K,L,M,N,O,P,Q,R,S,T,U,V,W,X,Y and Z under the Obama health care expansion mandates (unless the Supreme Court rules otherwise, that is), we can and should move all health care in the federal government to a catastrophic health care insurance plan that can be fully funded for people below the poverty line and then scaled down as income and wealth assets increase.

We might never get Medicare fully 'off-budget' that way but we would most certainly get Warren Buffett and Bill Gates and every other well-off to very well-off citizen off the federal assistance rolls where even the manual laborer working hard in the hot sun every day 'subsidizes' them with his payroll tax contribution of 1.45% of every dollar he earns.

There is no reason on God's green earth why such a minimum-wage hard working worker needs to be paying $20 every other week in Medicare payroll taxes to subsidize the Medicare Part A and B benefits of anyone in any income category above him.

That just isn't ethical or right...is it?

Neither is claiming that SS and Medicare are 'trust funds' (sic) when in reality they are nothing more than the transfer of funds from the working population to the retired population.

It is time to reform both programs and make them stand alone on their merits and individual funding mechanisms.

It would also 'shrink' the size of government back down way below where it has been for the past 40 years.

Wouldn't that make advocates of smaller limited government based on free enterprise and capitalism happy?

(Editor's Note: Frank Hill's resumé includes working as chief of staff for Senator Elizabeth Dole and Congressman Alex McMillan, serving on the House Budget Committee and serving on the Commission on Entitlement and Tax Reform. He takes on politics from a fiercely independent perspective at the blog Telemachus).

4 comments:

  1. USG (United States Governmnet) Ponzi scheme.

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    Replies
    1. Indeed. Largest in history going back to the Roman and Greek days.

      all the Caesars would have LOVED to have had the SS Administration confiscate the payroll taxes of all the working people in the land and had it redistributed upwards to people who did not need it

      I know a lot of seniors who take their SS payment each month and pay for the $360/month premium for each spouse..and then go play golf all day!

      Most have already taken out more than they ever put in SS with interest assumed and since Part B is at least 85% now subsidized by the taxpayer (not premiums), they in essence are getting 100% completely FREE health care when they get a new hip at $90k, a new knee at $60k and a new heart stent at $50k+

      What a country! No wonder everyone wants to come running here!

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    2. Ultimately it will collapse. Unless a major overhaul, one that, by necessity will result in completely changing the way SS (and Medicare)does business. Your ideas would be an excellent start.

      I just met with my new financial planner and we touched on these issues and points in your discussion. She was wondering if you were planning a run or the White House one day. I told her I didn't think so.

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  2. I am for the Chile model as we face what they faced back then, financial ruin. I hate the idea of being force by the government to do anything, but since some are unable to plan for the future then take a part of the money we earn and put it in a trust (not the government general fund). The politicians don't get to control it and they sure don't get to spend it. People could see their money and see it growing over the many years until they could make a decision that they have enough and retire.

    They say what happens if they out-live what they saved, what about those people. There is always going to be those people and we as a community are going to have to help, but I don't like being forced to provide for everyone for all time just because I have a good paying job. People need to look to their own affairs and stop expecting the government to solve their problems. Live isn't easy and it is harder if you are stupid.

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