Entitlement Reform Cometh Like a Thief in the Night

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Reason contributing editor Brink Lindsey has some wise and hopeful thoughts over at the Cato blog about how the age of out-of-control entitlements can, will, and must come to an end. An excerpt:

The nineties offered what in retrospect were optimal conditions for restructuring America's entitlement commitments and thereby winning huge victories for good policy and limited government. But…since when did countries ever make major systemic reforms at the optimal time? Over the past generation, we have seen bold moves around the world to unwind overreaching government and install more market-friendly policies. And almost without exception, those moves have occurred, not when favorable conditions permitted sweeping changes with a minimum of short-term pain and dislocation, but when countries had their backs against the wall…..

So while it's disappointing, it's not terribly surprising that we have thus far failed to face up to the fiscal unsustainability of our existing entitlement commitments. We have opted for delay because delay has been the path of least resistance, but it will not remain so indefinitely. At some point, the day of reckoning will arrive, and we will face an unavoidable choice: pay to keep the promises we have made with huge tax increases, or repudiate those promises and restructure the programs that made them. It is entirely possible that, when the time comes, we will end up choosing something much closer to the former than the latter……But I don't think it's inevitable. Indeed, there are sound, non-wishful-thinking reasons for believing that the limited-government side has a fighting chance.

He goes on to detail those reasons–in very quick summation, that we have been successful in keeping government spending as share of GDP relatively stable, and other countries, and ourselves, have succeeded politically in backing down on existing entitlement promises–but you should read the whole thing.

NEXT: Oooh! Aren't the Democrats Scary, Boys and Girls?

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  1. How did he forget Old People Who Vote?

    Medicare outlays won’t be stable even on a per participant basis – they will go up as the AARP flexes its muscle.

    Retirement payments per person won’t go down, they will go up so long as demographics puts old people in the drivers seat.

    Guaranteed healthcare for everyone, and a pony, will be the winning issue over the next 2 or so election cycles. Old people want it and so do the poor.

    Nothing can save 30 somethings from shouldering the burden except a ton of immigrants.

  2. … and we are busy kicking all of them out.

  3. Is this a good time to make a reference to That Survey (by whom I know not) That Says More Children Under the Age of Twentyfive Believe That Space Aliens are Visiting This Planet on a Regular Basis Than Believe That Social Security Will Help Them in Their Declining Years?

  4. Jason, why do you hate the greatest generation?

  5. CATO is right, there are only two solutions to the problem, but tax increases are not one of them. Given the magnitude of the projected increases in spending, raising taxes tenfold will be a drop in the bucket.

    There are two choices: cut benefits, or pay them and watch the economy go into a death spiral as foreign central banks stop buying the ever-growing public debt. The reason “experts” focus on the debt as a percentage of GDP is because that is the bellwether for the level of interest people are going to have in buying government bonds. At some point, debt as a percentage of GDP is going to start to go up substantially, and that’s when the birds will come home to roost.

  6. This is the old starve the beast thing. I think it’s the last straw conservatarians have to cling to but c’mon guys, we’re not going cut spending or raise taxes. We’re going to borrow more and print dollars to pay for it.

    Stock tip for you: buy GG.

  7. Once again, this term “debt as a percentage of GDP” is smoke and mirrors at its finest. Even the people who compute the term GDP admit that it’s not really measuring anything real. And then you get down to the nitty gritty of how debits and credits are calculated, and more importantly, how GDP is adjusted for things like inflation.

    Keep on believing that you can borrow forever without saving. The unicorns will make sure nothing bad ever happens…

  8. Brian: In effect, the resulting decline in the economy will be the same as a tax increase. We will pay for it one way or another.

  9. “…we have thus far failed to face up to the fiscal unsustainability of our existing entitlement commitment.”

    What a stupid lie. All we have to do is raise the cap on the payroll taxes and SS and Medicare would be fine. Throw in national healthcare with price negotiation capabilities and we’d be finer than fine.

    Only scumbag cheap short-sighted rich assholes who would rather steal from their grandchildren than pay their own bills wouls think that “…we have thus far failed to face up to the fiscal unsustainability of our existing entitlement commitment.” We have an unnatural and dangerous glut of wealth in America. Tax it and we’ll all be fine.

    JMJ

  10. Anyone up for a Troll Tax?

  11. “We have an unnatural and dangerous glut of wealth in America. Tax it and we’ll all be fine.

    JMJ”

    Comrade McNanny, I like you; you make me laugh.

  12. What’s the frigging point of being the wealthiest nation on Earth if all we do is wrok endlessly like plow mules until the day we die? The wealth is accruing at the top on the backs of our, the regular working persons’, labor. No one needs milliona and billions of dollars. Bring back the 70% margin.

    JMJ

  13. Taxing “other people” has been a staple of the Democratic platform since, forever.

  14. I had put aside large sums of money for my grandchildren, but it got taxed.

  15. Jersey: “All we have to do is raise the cap on the payroll taxes and SS and Medicare would be fine.”

    If you mean that the projected revenues from such an increase would match projected expenditures for medicare and social security, I would love to see some figures, if you have any.

  16. Jesus Christ, Ron, they cap the damn tax at what? 85k? If you lifted that cap, we’d be fine. Hell, WWII was almost entirely funded by taxing millionaires and that was back in the 40’s! How many friggin millionaires do you think there were in the 40’s? Get real.

    JMJ

  17. Yeah JMJ, what’s the point of working? It’s a well-known fact that goods and wealth are conjured out of thin air. Only ignorants believe they are created through labour.

    And everyone knows that the higher the taxes, the better off people are. In fact, let’s take your idea to its logical extreme and confiscate everything – 100% taxation. Anyone can see what a huge succes it will be !!!

    Talking seriously now, what’s the matter with you? Are you always such a moron, or did you forget to take your medicine?

  18. Hell, WWII was almost entirely funded by taxing millionaires and that was back in the 40’s!

    No, WWII was funded by expanding the income tax base far into the class od lower income workers. There just aren’t enough rich people to tax at any rate to raise anywhere near the revenues that the voracious modern state needs.

  19. Jesus Christ, Ron, they cap the damn tax at what? 85k? If you lifted that cap, we’d be fine. Hell, WWII was funded by taxing millionaires and that was back in the 40’s! How many friggin millionaires do you think there were in the 40’s? Get real.

    JMJ

  20. “We have an unnatural and dangerous glut of wealth in America.”

    Would that that were true.

    You know, this family down the street lived in 4,000 sf house, had 2 beemers and an SUV, 3 kids who were always decked out in the lastest style, as well as having all the latest technology and gadgets. Had the best parties.

    We all thought he was supremely wealthy, until they declared bankruptcy last year.

  21. Question for you, Jersey: Since, in your words, “nobody needs millions of dollars”, what are your thoughts on working stiffs who hit the lottery for big bucks? How about poor folk who hit the jackpot due to their talent as athletes and entertainers? Should they give the money back in order to retain their honor?**

    **Predicted answer: Not all, just 90%.

  22. Why stop there? Since the government has chosen to throw all of our “safety net” funding into the general coffers, I’m sure they wouldn’t just blow the excess if we removed the cap. And removing the cap to increase taxes for everyone with no increase in benefits, why, that’s fair. And it wouldn’t have a detrimental effect on the economy at all to pull out a few hundred billion dollars more from the economy. No sirree.

  23. Jersey: Here is an article that says if you took the cap off you would extend the time before social security started running cash deficits by six years. That doesn’t sound to me like we would be “fine”. http://www.post-gazette.com/pg/05060/464453.stm

  24. Yeah, I fixed that, Isaac. It was too hyperbolic.

    JMJ

  25. Ron, your stats look fishy. Kevin, there should be a return to the Rooseveltian tax code, adjusted for today’s dollars, of course.

    JMJ

  26. Anyone up for a Troll Tax?

    Given what we know, ours would be in continual IOU status…

  27. Jersey: Let’s see your stats. I’m getting bored with all the rhetoric.

  28. I like the Idiot Tax (aka “powerball”) The dumber you are, the more you pay.

  29. I haven’t seen anyone do the math on it, Ron. Of course, I have seen some stats, like your’s, that raise the cap along with the benifits, which is pointless. Meanstest the enfits, raise the cap, fuck the stupid rich, and we’d see families once again take priority in America.

    JMJ

  30. fuck the stupid rich

    Yeah JMJ. While you’re at it, fuck private property too !!! Long live social engineering.

    An Idiot Tax would have you paying through the roof.

  31. Jersey: Well, if you see some stats on the scenario you lay out, I’d be very interested in seeing them. By the way, I thought the Democrats were vociferous in opposing means testing?

  32. Yeah, the Dems have to pander on that one.

    As for private property, Daniel, that is unrelated.

    JMJ

  33. If you means test the poo out of the programs, you don’t need to raise taxes.

  34. Jersey: I found the following, which does show the scenario you describe, I think (you have to read down a ways). It would extend the time before the system went into deficit by 7 years. Not so good.

    http://www.concordcoalition.org/issues/socsec/issue-briefs/SSBrief9–Tax-Cap.htm

  35. Collecting more SS tax now does absolutely nothing for SS’s solvency in the future. The SS “surplus” is spent as it is collected either as benefits to retirees or as current spending. The “bonds” that treasury gives SS can only be redeemed in the future by taxation or borrowing. So forget about taxation now to save SS in the future. The only way to fund SS in the future is by collecting taxes in the future.

    Social Security as it is will be just fine as long as noone is bothered by Swedish levels of taxation. (imagine a link to “it’s a joke” here)

    Meanstest the enfits[benefits??]

    Well, you have one thing right.

  36. Isaac: You are correct, but right now Jersey and I are in an alternate reality (for purposes of argument), that somehow those additional funds would actually be segregated and applied to pay future benefits. Not a complete waste of time, in my view.

  37. Ron, the Concord Coalition isn’t going to do it here. Show me something from a more balanced source.

    Isaac, what you are saying is not exclusive of what I am saying.

    JMJ

  38. well, maybe instead of tax increases, the government could just unload some of its hard assets…

  39. Didn’t there used to be a SS calculator out there for these sorts of projections?

    JMJ

  40. Don’t worry, Gaijin, they are – giving the public land away to loggers, mining and big oil.

    JMJ

  41. Jersey: When you have something better, let me know. Bye, now.

  42. well, maybe instead of tax increases, the government could just unload some of its hard assets…

    Selling those assets to retire debt may be wise, but to do it for current spending is like selling your car to buy groceries. ie something you’d only do if you were desparate.

  43. Ron

    Jersey and I are in an alternate reality (for purposes of argument), that somehow those additional funds would actually be segregated and applied to pay future benefits.

    Of course the only way that that could happen is for the “surplus” to actually be invested in marketable securities and not the phony Treasury bonds now issued.

    Now having SS enter the private equity or bond markets is to my mind fraught with huge political and moral hazards. The only way I can see is to have SSA invest its funds in marketable municipal and state bonds. This removes the funds from the Fedgovs grasp, which IMO would be a good thing. And it would also bolster SS solvency by allowing it to earn interest at market rates.

    My preferred solution would be to phase out the payroll tax and phase in a new SS as an income supplement to the elderly and disabled poor funded out of general revenues.

  44. Isaac: Me too, primarily because it would be more intellectually honest. That solution becomes increasingly difficult politically as the boomers get closer to retirement (what, you mean I now get NOTHING for all that money I paid in!?!) You could have a transition rule that gives everyone back what they paid in, without interest, but I have no idea what it would take to make the numbers come out.

  45. Sorry about the troll-feeding, but this is kind of fun. Getting back to my earlier question, Jersey: Given your obvious disdain for the wealthy, how do you keep your head from exploding when a poor person you used to champion suddenly because a rich person you now detest? Or do they get a pass from membership in the “fuck the stupid rich” club because of their background? As they say on the call-in shows, I’ll hang up and listen.

  46. Jesus Christ, Ron, they cap the damn tax at what? 85k? If you lifted that cap, we’d be fine.

    In the first place, only the OASDI (Social Security) piece of payroll taxes is capped, HI (Medicare) is uncapped so that is a useless suggestion. In the second place the benefits are capped too.

    Hell, WWII was almost entirely funded by taxing millionaires and that was back in the 40’s!

    Riiiiight. Ever hear of War Bonds? Buy Buy, Bye Bye.

  47. Deduct 5 points for stupidity. Make that “suddenly becomes”, not “suddenly because”.

  48. Ron

    That is why there has to be a phase out/in.

    Whatever the faults of SS it represents a commitment that the govt made and ought to honor.

    SS retirement is not that big a problem. As others have pointed out the problem noone wants to face is MEDICARE!!

  49. Isaac: Me too, primarily because it would be more intellectually honest. That solution becomes increasingly difficult politically as the boomers get closer to retirement (what, you mean I now get NOTHING for all that money I paid in!?!) You could have a transition rule that gives everyone back what they paid in, without interest, but I have no idea what it would take to make the numbers come out.

  50. Isaac: I totally agree, but if you can’t solve social security….

  51. Social Security as it is will be just fine as long as noone is bothered by Swedish levels of taxation. (imagine a link to “it’s a joke” here)

    The Swedes have no immigration, a tiny homogenious population living in a few urban areas, and large amounts of natural resources that are sold by the government… so assuming that the Swedes had high taxes and a generous functioning welfare state (which is largely mythology), a Swedish economic model for the U.S. would make as much sense as a Kuwait economic model.

    Of course, the Swedish welfare system is a modest system comparible with the U.S. welfare system, and the government consumes a smaller percentage of GDP than the U.S. (which means the country pays less taxes in real economic terms.). And despite being a relative low-tax free-market country, their economy is slowing and it is doubtful that the welfare system will be able to continue.

    Seriously folks, argue all you want about government welfare spending… but it is not sustainable. We have been able to sustain it thus far, because we have been consuming our capital… eating our seeds basicly. But we have been trading long term economic growth and health for government “benifits”. The system is now no longer going to be able to survive.

    If you really cared about the poor, or seniors, or people who needed health care, you would be figuring out a way to end government “benifits” before they destroy our economy and a “lack of prescription benifits” is the least of everyone’s worries.

  52. RexRhino

    It was a fucking joke. I even said it was a fucking joke!!!

  53. “Selling those assets to retire debt may be wise, but to do it for current spending is like selling your car to buy groceries. ie something you’d only do if you were desparate.”
    -Isaac Bartram

    “Seriously folks, argue all you want about government welfare spending… but it is not sustainable. We have been able to sustain it thus far, because we have been consuming our capital… eating our seeds basicly. But we have been trading long term economic growth and health for government “benifits”. The system is now no longer going to be able to survive.”
    -Rex Rhino

    Which brings me to one of my favorite whines: the distinction (or lack thereof) between Investment and Expense. The government runs a gargantuan Ponzi scheme, and the rubes just cheer them on.

    I expect to work until I die. It’s better for you, anyway. Retired people are, on the whole, pathetic.

  54. It was a fucking joke. I even said it was a fucking joke!!!

    Sorry man! Chill out!

  55. I expect to work until I die. It’s better for you, anyway. Retired people are, on the whole, pathetic.

    Absolutely, in the end I think we really need to discuss abolishing the concept of retirement. Certainly the concept of retirement at someone else’s expense.

  56. RexRhino

    That’s cool.

    But the point of my joke was to deminstrate the unsustainability of the system as it is now.

    And even the Swedes are getting tired of Swedish levels of taxation. And, yes, you’re right their welfare system is unravelling.

    The thing about the Swedish welfare system is that when it started there were about 9 million Swedes and they were all Lutherans. And with that came a work ethic that meant that noone abused the system. Now there are about 14 million and a whole new generation and the whole bunch has given Lutheranism the boot.

  57. And I really can spell dem-O-nstrate

  58. Only scumbag cheap short-sighted rich assholes who would rather steal from their grandchildren than pay their own bills …

    That would be me. After all, my grandchildren are likely to be far richer than I am, and if you can’t steal from rich relatives, who can you steal from?

  59. Ok enough of this banter…i want concrete methods to getting out of paying Social security….i thought of one set up a company that i own, hire myslef at minimum wage then contract out my services to who ever i work for…anyone else got any ideas?

  60. The downside to means-testing SS benefits is that it penalizes the ants who have saved and lived frugally rewards the grasshoppers who have blown their money and lived extravagantly.

    I’m all for stopping SS benefits once people have received what they “paid in” (including interest). Of course, that means we need to cut off the current elderly who are getting back way more than they ever contributed.

  61. Just a note on the asinine comment about financing the government during the war years.

    I used 1941 (early mobilization) through 1946 (demobilization) for the following. All figures are in current dollars.

    Cumulative Receipts – 175.5 billion
    Cumulative Spending – 366.6 billion
    Cumulative Deficit (i.e. borrowing) – 191.1 billion

    Cumulative GDP – 1,092 billion
    Borrowing as percentage of GDP – 17.5 percent

    The war was financed by massive borrowing … QED

    All figures courtesy of …

    http://origin.www.gpoaccess.gov/usbudget/fy07/hist.html

  62. Egalitarians have it ass-backkwards. Due to economic growth, the future generations are the “rich assholes” we “should” be taxing. If we assume steady economic growth, we could just stop paying taxes because the people 100 years from now would be so rich, it would be a drop in the bucket from them. In fact, we should give everyone 100,000$ a year, financed by deficit spending, to “level the playing field” between poor contemporaries and rich future assholes.

    And in 100 years, the the rich assholes can then use the same logic – people 100 years from them will be much richer and pick up the bill. Keep it going, and no-one EVER has to pay taxes! It’s the loophole of the aeon!

  63. The downside to means-testing SS benefits is that it penalizes the ants who have saved and lived frugally rewards the grasshoppers who have blown their money and lived extravagantly.

    That’s the problem with any welfare scheme.

    That’s part of the reason that I believe we have to visit the whole concept of “retirement”.

    In the end we have to question whether the geezers should be able to sponge of the young just because they’re old.

    With not only life spans is it that unreasonable to expect them to just keep working.

  64. With not only life spans is it that unreasonable to expect them to just keep working., of course, makes no sense.

    It should read something like:

    With longer life spans and better health is it that unreasonable to expect them to just keep working?

  65. Meanstest the enfits, raise the cap, fuck the stupid rich

    Minus the inane class warfare vitriol, that’s pretty much what I’d do. Abolish FICA, turn SS and Medicare into actual welfare programs that don’t pay Warren Buffett more than the guy who worked in a coal mine for 40 years, and fund it out of general revenues.

    With longer life spans and better health is it that unreasonable to expect them to just keep working?

    Or even wackier, save for retirement themselves like most of us under 40 have figured out we have to do.

  66. Or even wackier, save for retirement themselves like most of us under 40 have figured out we have to do.

    Brian, if someone saves enough to do so I don’t give a shit if he quits working when he’s 25.

    What I’m getting tired of is the geezers who think that just coz they’ve reached 65 they’re entitled to quit working and sponge off those who are still working.

    OK, maybe I should have said:

    With longer life spans and better health is it that unreasonable to expect them to just keep working, if they haven’t saved enough to pay for their own retirement?

    Is that better?

  67. Issac, we’re in complete agreement. Living off government handouts should be the last resort, not the first.

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