Why Cutting Medicare Does Not Save Money; Why Cutting Defense DOES Save Money

My daughter has decided that she will be saving some money.  From now on, she will not spend any more money she gets from the allowance that I give her on lunches at school.  No, from now on, I will simply deposit via the online web site the appropriate amount of money into her lunch account at school which she can then automatically access via her school ID card.  And of course, her allowance and appetite will remain otherwise unchanged.  Correct me if I'm wrong, but according to my math, I think that although she may be saving some money, I will be spending at least that much more.

In reality this story is not quite accurate.  My daughter hasn't really tried to attempt this crass ploy on me - she would know better.  In reality this ploy is being foisted on all of us - all Americans - by those who claim that cutting Medicare and Medicaid benefits actually would actually save us - Americans - money.  No it would not, that is, not unless you don't mind being unwell, sick or dead.

In the example I began with, it becomes obvious nothing is saved overall if the spending is merely shifted.  In the case of Medicare or Medicaid, a benefit cut by the Government means health care expenses are merely being shifted from the government to the individuals needing the health care services.  True, the person could forgo the health care expense and then money would truly then be saved; that is, of course, unless the sick get sicker and then need even more expensive emergency care, which, it would follow, if we really want to save  money, the sick person would also have to forgo.  Ultimately the greatest savings would occur if the person needing the health care would simply just die in the first place.

Here is another irony; due to its enormous buying power, health care purchased and paid for by government is less expensive than that purchased by individuals.   The rate of increase in Medicare costs is less than the rate of increase in private health care plans. Wow, a double whammy!

May I submit that this is no way to save money.

This does not mean that we cannot save money in the general field of health care.  In fact, it is well-known that the United States spends more money per person and more money as a percentage of GDP on health care than any other country in the world while having fairly mediocre results to show for it.  Do not take my word on this; go to the World Bank for extensive data on the subject:  http://data.worldbank.org/topic/health.

At this point in the development of our country there really is no excuse for the U.S. not having a coherent health care system such as those that exist in Canada, Germany, France, Singapore or the Netherlands, to name a few examples.  All of the above countries spend less and live longer and better.

Yes they SPEND LESS overall on health care via the various universal health care system solutions that they employ than we do in the U.S. for our non-universal chaotic system.  There is simply no excuse for this. I suggest that our budget woes could be partially cured by studying these various systems used around the developed world, identifying the best one in practice, tweak it to mitigate its weaknesses, and then implement it here.  It might be no more traumatic than extending, more or less, Medicare, or some modification of it, to include everyone.

Now contrast the cutting of Medicare with the cutting of the Defense Budget.  If there ever were a part of government that is rife with fraud and waste, the Defense Department would be it.  There are whole billion dollar weapons systems that the Defense Department does not want that exist only to create jobs in the districts of various elected politicians.  This is known as "pork."  Yes, the Defense Department, if cut judiciously and with a sincere eye on America's security, could yield enormous "true" savings.

Why would they be true?  If a useless weapons program is cut, American citizens would not be reaching into their pockets to replace the benefit.  We would not be personally chipping in to fund the latest billion dollar stealth fighter out of our savings accounts. The money would really be saved.  The useless fighter would not get built.

Now you may argue that cutting defense would mean that jobs would be lost.  The same argument, however, applies to all spending cuts made by the government.  Health care jobs would be lost if Medicare or Medicaid were cut; educational jobs are lost when school funding is cut, and so on.  This argument does not only apply to Defense jobs.  Government spending/cutting affects jobs in both directions.

But there is one other thing; Defense Spending that is not vital to maintaining our security or freedom does us no other good.  It does not create housing, food, entertainment, health care, clothing or anything else of any use.  It does nothing to increase the wealth of America and in fact only decreases it by wasting precious resources.  When someone is employed to build a house, a house results. Someone uses it.  When someone builds a bomb, it either explodes and destroys itself or is stored away and never used.  No one benefits unless its use was vital to the maintenance of our freedom and way of life.  In other words, most of the expense goes to waste.

Cutting Defense then truly saves money; cutting health care benefits truly does not.  The solution is to cut Defense spending that does not compromise our ability to defend our security and freedoms and to institute a health care system that is at least as efficient as that used in many other other developed nations.  What are we waiting for?

To Fall or Not to Fall: The Fiscal Cliff

Should we or should we not fall off the "Fiscal Cliff"?  The quick answer is we'd prefer not to, but it really depends on the alternative.

If the alternative permanently enshrines low tax rates for the wealthy, well, then go off the cliff.  Ditto if the alternative also enshrines low tax rates for capital gains, dividends and other income that typically only the wealthy realize.  Go off the cliff if otherwise it means that the elderly will not be able to afford health care or retirement in general.  Go off the cliff if otherwise it means that the Defense Department budget is totally out of proportion to our need to truly defend ourselves.

If a partial measure is proposed that preserves tax cuts for those who earn $250,000 and under and extends the debt ceiling (or eliminates the need for it to be extended altogether) go for it but if it does that while extending the unjustifiable, forget it.

The "grand bargain" that is so often mentioned truly should be a no-brainer.  Here is what it should contain:

1. A very progressive income tax structure - more progressive than the current structure, probably with more tax levels, such as 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, etc., as income increases.  This should be the goal: the share of taxes paid by the wealthier in proportion to their increase in wealth should increase, not decrease as it has for the last couple of decades.  Apologists for the wealthy like to point out that the rich pay a higher percentage of the total tax burden than ever before but they deliberately fail to note that the income of the wealthiest Americans has grown far greater than the proportion of the tax burden that they pay has grown.  In other words, their tax burden has increased less than their wealth.  The slack has, in the past, been picked up by the Middle Class.  This has contributed to a shrinking Middle Class and reduced demand and a more slowly growing economy.
2. No special treatment for capital gains, dividends, etc.  Income is income.
3. A corporate income tax that is more competitive internationally, perhaps around 28% to 30%.
4. Tax reform; elimination of all deductions and credits except for local taxes.  This could be phased in over 10 years, with a 10% reduction in allowable deductions each year until there are no deductions.  This could be made revenue neutral by adjusting the income levels for each tax bracket.  This will also help the Middle Class if the tax brackets are done correctly.
5. Deep defense cuts as per the Simpson-Bowles commission.
6. Universal health care - Medicare for All which should decrease the rate of growth overall of US health care spending if not decrease the cost of health care overall as it does around the world, without a sacrifice in quality of health care.  There are numerous examples of superior health care systems around the world, including Canada, on which to base our system.  This would solve two problems at once - saving money for US citizens and covering all citizens for health care.  All kinds of tweaks are possible, such as means testing, incentives, payments based on results, not based on pointless tests, etc.  Business will finally be free from providing health care, a boon to them!
7. Tweaks to Social Security to stabilize it for the next century.
8. Stimulus - for infrastructure, education and energy self-sufficiency - and jobs.  If we do the above, we can easily afford this, and all of these items are necessary and productive uses of capital.

You might ask, "aside from # 5, where are the tax cuts?"

Actually, to the US citizen, #6 is a huge spending cut; it's just that not all of it is a tax cut.  Does it matter to you whether you save money by having lower taxes or having health care cost less?  Health care is not exactly discretionary unless you don't mind suffering or dying.  If you consider that total health care costs might be 40% less than what they are now if a Canadian type system is  instituted (approximately 7% to 8% of GDP saved) would you complain?  Although no one is talking about it, controlling government spending pretty much consists of cutting defense and reforming health care costs, and not simply reforming Medicare and Medicaid. 

Well I think my work is done.  That was simple.

You're welcome!