Saturday, November 7, 2009

Straight Talk About Debt

No issue is more politicized than deficit spending.  Blame abounds, but little insight is given into the components of our deficit, and what reasonable action must be taken.
For a history of US deficit spending, click here.  For an estimate of our current national debt, click here.


The stimulus package comprises approximately 10% of our current deficit. 
The majority of the deficit spending is comprised of:
  1. Unfunded liabilities from tax cuts made by Jobs and Growth Tax Relief Reconciliation Act of 2003.  When enacted, the Congressional Budget Office estimated that the tax cuts would increase budget deficits by $340 billion by 2008.  That effect has been exacerbated by the just ended recession (see 3. below).
  2. Unfunded liabilities from Medicare Drug Program.  When enacted, Medicare chief Mark B. McClellan said the drug package would cost $1.2 trillion between 2006 and 2015.
  3. The opportunity cost in GDP lost because of the recent recession which began in 2008.  Generally, annualized GDP grows just under 3%.  For the 18 months ended June 30, 2009, annualized GDP contracted just under 2% - or 4.6% less than average.   From the last quarter in 2008 to the second quarter of 2009, our $12 trillion economy shrank an aggregate of nearly $400 billion - representing a huge loss of tax revenue, loss of employment, etc.,
No credible economist would argue that the stimulus package was unnecessary.  It was begun by necessity in the previous administration and continued into the current one.  It is not the source of our economic problems, and allegations to the contrary are clearly false.

Growth of health care costs is unsustainable.

Left unchecked, growth in health care costs, currently about 17% of our GDP, will bankrupt the US.  That is not overstated to create alarm.  It is a fact.
Those who take the position that we cannot afford to pass comprehensive health care reform are wrong. 
Health care costs are increasing 6.2% per year.  At that rate, in 25 years health care cost will be almost 30% of GDP.  In 50 years, it will be almost 50%. 
It's the biggest problem we have, and we must solve it in order to address deficit spending in any meaningful way. 
To counteract any effort to address this problem which may threaten their profits,
  • $3.8 billion has been spent by the insurance and finance lobbyists and
  • $3.69 billion, by health industry lobbyists,
according to Open Secrets, a non-partisan group referenced recently in an article by the Wall St. Journal.  No industries have contributed more, by the way.

Medicare first.

Only one group represents more clout than the two lobby groups discussed above.  Retired persons.  Grey panthers.  AARP.  Lots of boomers with time to spare, and raised during a time where the promise of Medicare (enacted in 1965) was sacred.  Prior to the aforementioned unfunded drug program in 2006,
  • the number of Medicare recipients increased 2 times - from 20.4 million to 42.6 million 
  • the economy grew 12 times - from $1 trillion to $12 trillion
  • Medicare spending grew 47 times - from $7 billion to $339 billion
Big problem.  Anyone can see that costs are rising too fast.  So where should we start?
  1. Increasing information technology for patients
  2. Containing drug costs via use of generics
  3. Limiting malpractice judgements (thereby limiting doctor's insurance premiums)
  4. Opening group insurance rates to small business
  5. Providing equal tax benefits to private insurance as employer-provided insurance
  6. Lowering the deductible and raising the contribution limits on Health Savings Accounts
These policies would assure that the goal of cost containment would be foremost in the minds of legislators.  If we don't get this right, we go broke. 
It's as simple as that.

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