Of course, without substantial future economic growth, the current high unemployment conditions will remain a big problem well into the future, too.
Apparently the Republicans want to protect the "Bush tax cuts" and the Democrats want to protect entitlements more than either side wants to address our nation's financial mess in a meaningful and adult manner. As this charade continues, we're looking more like many European countries--dysfunctional and ungovernable.
Simply put, any solution will necessitate (1) increased private sector growth along with (2) a combination of increased tax revenues and reduced entitlement spending, accompanied by a focus on less government spending, waste and regulation.
The so-called Bush tax cuts were first introduced in 2001 during a much different time when budget surpluses, not deficits, were projected far into the future. In accordance with the budget gimmickry of our federal government, they were 'slated' to expire at the end of 2010. These cuts included both taxes on the affluent as well as middle class earners, too. In round numbers, 80% of the reduced tax benefit went to middle class earners and 20% went to the rich folks.
Of course, when expiration time came, extension time began. So did the political games.
As with popular entitlement benefit programs, politicians have an easier time reducing taxes than increasing them. It's more 'voter friendly' for certain.
So now the president and his Democrat allies 'only' want to increase taxes on the bad guys or 1% of the voters--er--earners, and not on those voters-er-earners who received 80% of the benefit from the Bush tax cuts.
The president and his cronies apparently like most of what Bush did--at least 80% thereof. Unmistakably, this debate isn't about economics. It's about votes.
With respect to entitlements for the elderly, current programs for medicare and medicaid nursing home benefits clearly aren't sustainable as currently constituted. Neither is social security.
In fact, U.S. health care costs escalate each year at a rate much faster than general costs of living increase. Our fee for services third party payer approach is way too costly and therefore unsustainable as well. Besides, the demographics are working against us at the same time. We're getting older as a society.
In this regard, the enactment or even outright repeal of Obamacare won't change any of those simple facts. The costs of health care in America aren't being matched by payments into the system. We're running on lots of borrowed money, and it's the same with medicare, medicaid and social security, if viewed honestly and objectively.
In sum, we couldn't afford our growing health care burden before Obamacare was enacted, and that legislation, whether upheld or overruled by the Supreme Court next year, will do nothing to bring down costs.
So there we have it. If we want to maintain all the benefits we've promised ourselves, taxes will have to be raised materially and applied to a far greater percentage of the American population than the so-called millionaires and billionaires. Unless we want to redefine millionaires as people who earn greater than $50,000 annually.
And if we want to maintain tax rates for those $50,000 and above earners, we'll have to dramatically curtail benefits for social security, medicare, medicaid and even Obamacare.
A combination of more tax dollars and fewer entitlements will happen, in other words. The only question is when and by how much.
We'll need to address many other spending and revenue issues as well, and we should. But that won't change the simple fact that taxes for the many and entitlements for the elderly are have-to-do items.
Four Nations, Four Lessons was written by distinguished economist Greg Mankiw and compares our American situation with France (big government/slow growth), Greece (game over), Japan (deflation) and Zimbabwe (hyperinflation).
Importantly, Mankiw says this about our available choices and outlook:
"The more we rely on deficit spending to keep the economy afloat, the more we risk the kind of sovereign debt crisis we have witnessed in Greece over the past year. The Standard & Poor’s downgrade of United States debt over the summer is a portent of what could lie ahead. In the long run, we have to pay our debts — or face dire consequences.
To be sure, the bond market doesn’t seem particularly worried about the solvency of the federal government. It is still willing to lend to the United States at low rates of interest. But the same thing was true of Greece four years ago. Once the bond market starts changing its mind, the verdict can be swift, and can lead to a vicious circle of rising interest rates, increasing debt service and budget deficits, and falling confidence.
Bond markets are now giving the United States the benefit of the doubt, partly because other nations look even riskier, and partly in the belief that we will, in time, get our fiscal house in order. The big political question is how.
The nation faces a fundamental decision about priorities. To maintain current levels of taxation, we will need to substantially reduce spending on the social safety net, including Social Security, Medicare, Medicaid and the new health care program sometimes called Obamacare. Alternatively, we can preserve the current social safety net and raise taxes substantially to pay for it. Or we may choose a combination of spending cuts and tax increases. This brings us to the last of our cautionary tales: France.
Here are two facts about the French economy. First, gross domestic product per capita in France is 29 percent less than it is in the United States, in large part because the French work many fewer hours over their lifetimes than Americans do. Second, the French are taxed more than Americans. In 2009, taxes were 24 percent of G.D.P. in the United States but 42 percent in France."
France already resides in the land of big government--no growth--high taxation--lower living standards. Without a change in direction sometime soon, that's where the U.S. is headed as well.
So what exactly does the future hold if we choose to work and earn less, maintain entitlement programs and increase the social safety net continuously?
To me that kind of future looks like a permanently much lower standard of living for one and all. Including future generations.
We'll get to be like France, in other words. Let's hope not.
Thanks. Bob.
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