For many decades, Republicans have attempted to do something about the gigantic entitlement programs that are ruining the federal budget. Each time, they have experienced major political setbacks. It does no good to advocate sensible policies if the result is that the change fails anyway, and then you get kicked out of office.
Eventually, Republicans came to love the Trump solution—or at least what he proposed as a solution. Promise never to touch entitlements. Proclaim them to be sacrosanct. Find savings in other areas, in waste, fraud, and abuse.
That was the job of Elon Musk and the Department of Government Efficiency. After months of work, they found financial scandals and cost overruns that would be a disgrace for any corporation. They slashed and burned as much as the law allowed and were often blocked even then. Even with all that, even with high numbers that many dispute, they found only a fraction of the savings they needed for a balanced budget.
As David Stockman has proved many times over, the real problem, the very core of the issue that must be confronted, comes down to Medicare, Medicaid, and Social Security, three programs introduced in the middle core of the 20th century that generally fly in the face of the traditional American ethos of small government and independent thriving of the population.
Today, these three programs account for nearly half of the federal budget, $2.7 trillion out of a $6.9 trillion budget. This is more than three times the spending on national defense, the largest discretionary budget item. Demographics absolutely guarantee that these programs, if left unreformed, are unsustainable and will consume national wealth and drive the country into indebted poverty and inflationary finance.
Tax cuts are out of the question on any major level until they are reformed. And yet the problem is even worse. Because none of these programs can be funded out of revenue but instead rely on debt finance, they further add to the debt, the interest of which has to be paid by tax dollars else the nation defaults. In 25 years, interest on the debt will exceed the whole of today’s total budget allocations.
No one disputes these numbers. They are terrifying and will unfold exactly as predicted unless something is done. Instead, every Congress keeps kicking the can down the road, assuring that the problem grows even worse.
The main issue is politics. No one wants to vote for curbs, cuts, and reforms because they inflame recipients to anger and create a very bad look for the politicians who do the cutting and changing. So they nearly always choose the cowardly path. It is conventional wisdom that no political leader can make headway on a national stage while proposing any substantial changes.
As plainly as possible: Any politician who says that all is well and that these programs are fine, funded, and not at all anything to change is not telling the truth. Even the most casual look shows otherwise.
Real-world considerations, however, demonstrate that simple defunding by Congress with no other changes is simply impossible. I do wish it were otherwise.
What is really needed are structural reforms in the programs themselves. We need legal off-ramps so that people can get out from under their dependency relationship.
This is especially true for Social Security. It was introduced by President Franklin Roosevelt (FDR) in 1937 with full awareness that the program would quickly become politically untouchable. That is because people pay into the program as if it is some kind of term life insurance or savings program and then get an income stream from it near the end of life.
The truth about Social Security, however, is that it was never solvent as a savings or insurance program. It was always a tax-and-spend program masquerading as something else entirely.
You can figure it out based on demographics alone. In 1937, the expected age of death was 60. Benefits would arrive at the age of 65. FDR fully doubted that many people would ever see the inflow, but the tax pertained anyway. Then the war came in, killing off many people, too. I know this is a dark observation, but it is true.
Social Security was a revenue program. Only after the war’s end and FDR was expired did it become a benefits program. By that time, there was a growing expectation that it should be sufficient to provide for a full retirement. After all, people had paid into it, or so they believed. To this day, the truth of this entire Ponzi scheme is taboo in American life.
The best and only way out is to permit all existing workers immediately to opt out. Anyone can have a look at promised benefits versus taxes and make that calculation on their own. The government will continue to be on the hook for paying out promised benefits, of course.
Under the new scheme, there could be incentives for leaving the program, surrendering all expected benefits, by the creation of a tax-free retirement account that goes far beyond the existing limits on IRAs and 401(k)s. It is possible that we would immediately see millions simply dropping out.
Crucially, the decision to save, or not really, must be left to the individual. If they don’t want to pay in now and perhaps wait until later and take the risk, that should be up to them.
Yes, this approach will gut the federal government of a major revenue source, but at least it would slash long-term liabilities. That’s the central point. Other changes could deal with existing liabilities such as raising the age of eligibility or otherwise means-testing on the high end.
As for Medicare and Medicaid, rooting out massive waste and fraud is a step. Ending the national prescription cartel on prices—which Trump has already done, although we await implementation—is another. That said, these methods do not and will not solve the problem. Simple cuts in benefits alone cannot survive politically.
Here again, there has to be structural reform to allow people to opt out of the system. More than that, we need incentives for people to withdraw from the system. We need universal Health Savings Accounts (HSA) with no caps and no taxes. They need to be available to people of all ages.
There needs to be a broadening of service providers who can receive payments from HSAs, including homeopaths, naturopaths, and others. Nurses need to be emancipated to do diagnostics and allow prescriptions. Thousands of drugs need to be taken out of prescription status and made available over the counter.
Insurance options need to broaden to include catastrophic-only care from any provider. Health actuaries need to be unleashed to do risk assessments based on individuals and not just huge data pools. Premiums should adjust by health to provide a wellness reward.
Employees should be able to opt out of employer-provided insurance and shop on a genuine free market for services. Doctors and providers need to be able to become direct primary care providers without any regulatory tethers.
These kinds of reforms would dramatically release pressure on centralized systems and reduce costs for the future. Who would resist such changes? Only the stakeholders in the established systems who cling to their privileges.
But, my friends, regardless, something has to change. We cannot continue on the same path. Leaders need to stop fibbing to the American people about the economics of these programs and admit that they simply cannot continue on this path. It’s a huge priority: Entitlements must be fixed and now, before it is too late.
