By James Schaefer.
At long last, the topic of entitlement reform – “the topic” — has been broached (see Weekend Interview with Paul Ryan).
These entitlements — Social Security, Medicare, Medicaid, and the Prescription Drug Benefit — are the promises that politicians have made to American citizens for decades. We think of them as government expenditures, but in actuality they are transfers from American citizens to other American citizens.
Entitlements comprise the vast majority of the annual budget deficit, the cumulative deficits known as the debt, and virtually all of the $112.6 trillion in U.S. unfunded liabilities, those demand payments that American citizens will owe to other American citizens in the future (see U.S. Debt Clock, bottom row).
These four social benefits, in their current form, are actuarially unsustainable. They are going to collapse.
The reason is simple: there are, or will be, too few taxpayers and too many recipients.
The money to pay for these promises is not money that government has. We will not be able to cash in the trust funds to pay the claims.
In a broad sense, the money can be obtained from four places: taxation, borrowing, printing, or “borrowing from” (raiding) someone’s retirement savings.
But they all end up as taxes on households and businesses, and in the final analysis this really means taxes on personal income, because consumer spending, ultimately, is what sustains business profits.
The heart of this discussion gets down to a single question: whether the country should be pushed to the brink of bankruptcy — think Greece or Ireland — because of political promises made to provide social benefits, and the borrowing and taxation required to sustain those benefits.
The solution will require all parts of the political spectrum — Left, Right, and Center — to join together to solve them, and to identify what we are willing to give up. We are in this together.
John Kennedy’s most famous quote, “Ask not what your country can do for you . . .”, was penned by speech-writer Theodore Sorensen. It puts a spotlight on America’s history of self-sufficiency, and on the need to give of ourselves — not what we can get from government.
It is time to re-kindle that fire.
The question we need to ask ourselves is, Who are the keepers of that flame?