Five budget realities no politician will talk about (not even Ron Paul)
Ron Paul deserves credit for making the boldest proposals of any candidate in the presidential race. The astonishing reality of the federal government’s budget situation, however, is that even his plans might not be enough to keep Uncle Sam out of bankruptcy. While President Obama offers a $3.8 trillion budget that optimistically might cut the federal deficit to $575 billion by 2018, federal data suggest the United States is already broke. The Federal Reserve estimates that the net value of all private assets, including real estate, stocks, bonds, businesses, cash, etc., is $57 trillion. But the Treasury Department estimates the federal government’s net worth is a negative $61 trillion. Here are five budget realities that no candidate wants to acknowledge:
1. Medicare is America's largest budget burden
Through Medicare, the federal government has promised to pay our medical bills when we retire. In return, we pay 1.45 percent of our wages, and employers pay another 1.45 percent. When economists add up expected tax revenue and subtract promised benefits over the next 75 years, discounting future amounts by an assumed interest rate, they find that the government is short by $37 trillion. Federal spending on medical care is the biggest contributor to the government’s budget problems, and many economists believe that even this figure understates the true problem.
In Mr. Paul’s economic plan, Medicare spending increases by 20 percent from 2013 to 2016, the same as Mr. Obama proposes. Paul says that his plan “honors our promise to our seniors.” It does, but the promise will be difficult to keep, since Paul also proposes allowing younger workers to opt out of Medicare, which would cut revenue coming into the program.
GOP presidential candidate Mitt Romney also promises to “honor our commitments to our seniors” and attacks Obama for cutting Medicare. Romney has made vague promises to save money by raising eligibility ages, but these promises will be difficult to keep after attacking Obama for his own supposed cuts.
Democrats are often thought of as the tax-and-spend party as opposed to budget-cutting Republicans, but party affiliation is not a good predictor of the behavior of elected officials. For example, $7 trillion of the $37 trillion Medicare shortfall comes from an initiative of President George W. Bush, Medicare Part D, and under President Obama, the payroll taxes that fund Medicare have been cut.