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Analysis/Comment Last Updated: Mar 6, 2013 - 8:25 AM


Dr Peter Morici: Bringing facts to the US budget debate
By Professor Peter Morici
Mar 6, 2013 - 8:22 AM

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President Barack Obama talks with Council of Economic Advisers chair Alan Krueger following a Cabinet meeting in the Cabinet Room of the White House, March 4, 2013.

Dr Peter Morici: Bringing facts to the US budget debate; Federal deficits are too large and mounting national debt threatens future generations. Both Democrats and Republicans embrace demagoguery and refuse to address facts and acknowledge lessons of history.

Since 2007, federal spending is up $1 trillion dollars and deficits jumped from $161bn to $1.2tn over five years.

Higher taxes on the wealthy and Obama Care levies will pull down the gap in 2014 but then it will rise again. Health care, social security and slow growth, not low taxes, are the culprits.

Tax rates and rules imposed in January will increase revenue’s share of GDP well above its average for the last forty years.

However, Americans spend 18% of GDP on health care, while the Germans and Dutch, with more government cost sharing and better care, spend about 12%.  

Even with Obama Care, private insurance premiums and out-of pocket expenses are rocketing, while Medicare and Medicaid have suppressed provider reimbursements to levels that many physicians refuse to take publically-financed patients.

Benchmarked against Germany and Holland, US private health care prices are too high, while government rates for the poor and elderly are too low to cover providers’ costs.

Republicans would rely more on markets and competition—scrapping most Obama Care mandates and giving elderly vouchers to buy private care—and hoisting the poor onto the states by replacing Medicaid with block grants.

Those would not bring down private health care prices—cash grants to the elderly and fragmenting Medicaid administration would raise those.

GOP strategies would leave many elderly and poor forgoing care, less healthy and dying too young—much the new reality for the former middle class and poor in Portugal, Spain and Greece.

The Germans do what Messrs Obama, Boehner and others are unwilling to conceive—directly reimbursing most health care costs, regulating most providers’ prices, slashing administrative burdens and executive salaries, and eliminating most malpractice suits.

The necessary taxes would be less expensive for US businesses and individuals than the taxes, health insurance premiums and out-of-pocket costs they now bear.

Americans live longer and can work longer, and social security and government pension ages should be raised to 70. No system of social insurance or federal finance can work when folks can live another 20 or 30 years in retirement.

No tax increase can escape these realities—overtaxation caused nothing but slow growth, misery and decay in southern Europe.
 
Overregulation of the private sector does not mitigate, but rather exacerbates risks of financial crisis. The greatest threats come, not from private bank meltdowns and personal bankruptcies, but rather from a loss of confidence in government’s ability to promote adequate economic growth and hence raise revenues to finance its legitimate responsibilities.

President Obama inherited a mess—unemployment peaked at 10% in his first term—but since his recovery began, economic growth has averaged only 2.1%.

President Reagan inherited a mess too—unemployment peaked at 10.8%—but at the comparable point in his recovery, growth was averaging 5.3%. Fueled by continued strong growth, federal deficits dissolved in the 1990s.

Instead of campaigning that cutting federal spending one half of one per cent
must force food shortages, outbreaks of E. coli and streets without police, the President would do better to read more about Reagan and less about Lincoln—he faces a growth crisis not a civil war.

Republicans would do better to acknowledge that just as national defense can’t be left to private armies, markets and competition can’t solve health care inflation.

Both sides need to be honest with Americans about working longer and accept a radically different role for government if they want to leave the nation to their grandchildren as they inherited it—prosperous, secure and solvent.

Peter Morici,

Professor, Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone

pmorici@rhsmith.umd.edu

http://www.smith.umd.edu/lbpp/faculty/morici.html

http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm

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