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America’s Budgetary Challenge“What’s in your wallet???”It’s of little wonder that the most elaborately produced TV commercials in years feature Nordic barbarians, swords slashing, drawn to their quarry by the mere scent of excessive spending. “If they don’t start focusing on the 800 pound gorilla, they’ll never be able to get control of the budget,” said Robert Bixby, executive director of the Concord Coalition. This was said after recent budget legislation had failed to touch the largest and fastest-growing side of the budget—Social Security, Medicare and other benefits paid automatically without Congress having to vote on them. Of this year’s $2.4 trillion budget, only about one-third will be spent on federal programs that Congress must approve every year, items like U.S. troops body armor or USDA meat inspection; programs that will total about $822 billion this year; but which do not include the $100 billion that may be required for wars in Iraq and Afghanistan and worldwide actions against terror—perhaps for some time to come. In fact, portions of this part of the budget for defense and domestic security are items that are largely untouchable. Therefore, it is barely one-sixth of the overall budget that gets the bulk of legislative attention—all aimed at ways to save money, anything to address what was, last year alone, a $413 billion deficit. Nordic barbarians do not visit Congress. That would be a commercial worth filming. Texas Republican Pete Sessions promised no wild spending sprees. However, Sessions of Texas is a different kind of sessions than sessions of Congress, those most reluctant to slow the growth of entitlement programs. Social Security and Medicare will lead the entitlement growth from $1.5 trillion this year to $2.5 trillion by 2014, with no prospect of diminishing or even slowing. 76 million baby-boomers will lead a barbarian charge in 2008, each screaming wildly “What’s in your wallet?” The relentless attack on Medicare will come three years later. Rapid advances in medical technology and pharmaceuticals drive the ever-rising cost of health care. Government calculates that health care costs jumped by 9.3% in 2002, the latest data available. The official prediction for the foreseeable future is of 7+% increases annually. Joseph Antos, a health policy analyst at American Enterprise Institute, summed it this way: “In the end, it’s the entitlements that are the real threat to deficits!” The Congressional Budget Office was prompted by such data to warn: “Unless taxation reaches levels that are unprecedented in the United States, current spending policies will probably be financially unsustainable over the next 50 years!” Unless the dictionary is wrong, unsustainable is a call for finding new revenues. Congress has shown no taste to take on senior citizens, veterans and others who rely on federal benefits. (And who can blame them?) One might add that these beneficiary categories are, for the most part, law-abiding citizens, a subtle distinction we will come back to later in this paper. Also to be noted and remembered is that President Bush and Congress created Medicare prescription drug coverage in 2003, estimated to cost $400 billion over the next decade. For the sake of simplified math for later argument, let’s say at a cost of $40 billion per year. President Bush has consistently expressed his desire to revamp Social Security. The incoming chairman of the Senate Budget Committee, Senator Judd Gregg, (R-NH) has declared himself ready for that task. Nonetheless, Mr. Bush and others have just as forcefully promised that Social Security recipients will not face benefit cuts, a stance not taken by budget realists. Is there a solution? In my 2002 book, (“Birthright of Freedom”) with CPA David Wigfield, we outline a Social Security proposal to address the current and future crisis via a cash grant of $8000 at either birth or at naturalization for every new citizen. (4 million new persons per year) No further deposits are required. Therefore, these persons may also contribute payroll taxes to fund existing government pension obligations, (debt already in the system, an estimated 45-47 trillion dollars.) This $8000 birthright sum, invested conservatively till retirement age 65, is projected as sufficient to pay for today’s Social Security pension, adjusted into the future, and with extra cash or income to spare. In addition, each new account, for both male and female participants, is inheritable private property. Another recent book, “The Coming Generational Storm,” by economist Laurence Kotlikoff and journalist Scott Burns, spells out clearly what kind of rational investment vehicles might be appropriate, both for safeguarding such pension funding and for separating it from government control or manipulation. We now ask you to put this train of thought aside for future use. We do ask you to note that the cost of this potential solution, given current demographic projections, is $32 billion dollars (adjusted for inflation) annually. If you now also recall that the cost of the previously enacted new prescription drugs plan is $40 billion dollars annually, it will be clear that together the sums add up to $72 billion dollars annually. For the moment, it’s this $72 billion annually I want you to remember. I want you to think of these future entitlement beneficiaries as law-abiding citizens. Found MoneyThere is little likelihood that you have not heard the saying: “There’s no such thing as a free lunch.” In case you might want to put ‘found money’ into the class of free lunches or perpetual-motion machines, please reserve your judgment. That is because I am going to show you how we can pay for the $72 billion dollars annually that I have already earmarked for Social Security and Medicare and, for as many years into the future as you care to calculate. Secondly, I am going to show you how to have a budget surplus of an additional $50-60 billions of dollars annually to devote to other purposes, again for as long into the future as you care to calculate. A ‘budgetary barbarian defense-shield,‘ if you will. Even better, I will show you how we can get those who are not law abiding citizens to pay for it, and all to their own betterment rather than detriment. Moreover, the solution is easy to implement.
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