Open letter to President Obama (Part 236)

 

President Obama c/o The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear Mr. President,

I know that you receive 20,000 letters a day and that you actually read 10 of them every day. I really do respect you for trying to get a pulse on what is going on out here.

Below is an excellent plan to balance the budget through spending cuts from Chris Edwards of the Cato Institute written in April of 2011. Here is the fourth and final part. I hope you will take advantage at least of some of these suggestions below.

A Plan to Cut Spending and Balance the Federal Budget

by Chris Edwards, Cato Institute

Medicare, Medicaid, and Social Security

The projected growth in Medicare, Medicaid, and Social Security is the main cause of America’s looming fiscal crisis. Budget experts and policymakers across the political spectrum understand the need to restructure these programs. The reforms listed in Table 1 include repealing the 2010 health care law and some initial efforts to control health care and Social Security costs.

For Social Security, the growth in initial benefits would be indexed to prices rather than wages, which would slow benefit growth over time. The proposal would save $41 billion annually by 2021 and growing amounts after that, according to the CBO.14 The plan also includes a CBO option to modestly raise the program’s normal retirement age.15

Medicaid should be converted from an open-ended matching grant program to a block grant, which would provide a fixed amount of funds to each state but allow state policymakers more program flexibility. That was the successful approach used for welfare reform in 1996. Converting Medicaid to a block grant would reduce federal costs, while encouraging innovation and cost reductions by the states. Setting the Medicaid block grant at the 2011 level of Medicaid spending would result in saving more than $200 billion annually within a decade.

The plan includes some modest Medicare changes based on CBO estimates, including increasing deductibles for services and increasing premiums for Part B to cover 35 percent of the program’s costs.16 The plan would repeal the 2010 health care law, including the higher revenues and spending. It further assumes that the Medicare improper payment rate, which is at least 10 percent, would be cut in half.

However, much larger reforms to the program are needed. Cato scholars have proposed moving to a system based on individual vouchers, personal savings, and consumer choice for elderly health care.17 The House Budget Committee has similarly proposed a plan to convert Medicare into a consumer-driven health system.18 Such reforms would create strong incentives for providers and patients to improve system quality and efficiency.

Privatization

In recent decades, governments around the world have sold off state-owned assets to private investors.19 Airports, railroads, electric utilities, post offices, and other assets have been privatized. Privatization generally leads to reduced costs, higher-quality services, and increased innovation in formerly moribund government industries.

There are many federal assets that should be privatized. Table 1 includes the privatization of Amtrak, the air traffic control system, and the Army Corps of Engineers. Such reforms would reduce federal budget deficits and help spur economic growth.

Consider the nation’s air traffic control system, which is run by the Federal Aviation Administration.20 The FAA has struggled to expand capacity and upgrade its technology, and its modernization efforts have often fallen behind schedule and gone over budget. A series of incidents in 2011 indicated that the agency has serious workforce management problems. The air traffic control system needs major improvements to meet rising travel demands, but the FAA may not be capable of meeting the challenge.

The good news is that a number of countries have restructured their air traffic control systems and provide good models for U.S. reforms. Canada privatized its air traffic control system in 1996, setting up a private, nonprofit corporation, Nav Canada. The company is self-supporting from charges on aviation users. The Canadian system has received high marks for sound finances, solid management, and investment in new technologies.21 Aside from those advantages, a privatized system in the United States would save about $6 billion a year in general fund taxpayer costs.

Conclusions

Official projections show that without reforms federal spending will soar to more than 40 percent of GDP by 2050, and even higher after that. State and local spending comes on top of that, with the result that governments would consume more than half of the entire U.S. economy.

However, it seems inconceivable that voters and taxpayers would let the government grow to anywhere near that large. Indeed, the results of the 2010 elections indicate that there is already widespread disapproval of big government. It is also unlikely that the government would be able to raise taxes much above current levels to support higher spending because of our increasingly globalized economy.22

The upshot is that we will have to make major spending cuts sooner or later, and it would be better to make them sooner before we accumulate even more debt. Policymakers can start with the menu of cuts presented here, and then they should pursue other reforms such as restructuring Medicare. Leaders of other industrial nations have pursued vigorous cost-cutting when their government debt got out of control, and there is no reason why our political leaders shouldn’t do the same.


2 Congressional Budget Office, “Preliminary Analysis of the President’s Budget for 2012,” March 2011.

3 For these estimates, see Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2011 to 2021,” January 2011, p. 22.

4 For estimates of these adjustments, see Congressional Budget Office, “The Budget and Economic Outlook: Fiscal Years 2011 to 2021,” January 2011, p. 22.

5 This is the president’s budget as estimated by the CBO. See Congressional Budget Office, “Preliminary Analysis of the President’s Budget for 2012,” March 2011.

6 I assume that discretionary spending cuts are phased-in over 10 years, one-tenth each year. The proposed changes to Medicaid, Medicare, and Social Security would begin right away, but the savings would increase over time.

7 I modeled interest costs using CBO baseline projections regarding interest rates. I adjusted for the fact that public debt is projected to grow faster than indicated by the compounding of annual deficits in coming years.

8 In particular, see Budget of the U.S. Government, Fiscal Year 2012, Analytical Perspectives (Washington: Government Printing Office, February 2011), Table 33-1.

10 Budget of the U.S. Government, Fiscal Year 2012, Analytical Perspectives (Washington: Government Printing Office, February 2011). See also Chris Edwards, “Federal Aid-to-State Programs Top 1,100,” Cato Institute Tax and Budget Bulletin no. 63, February 2011. Note that these state aid programs are a subset of the 2,000 total subsidy programs mentioned earlier.

13 Aside from the costs of the Iraq and Afghanistan wars, Department of Defense spending will be about $560 billion in fiscal 2011, up from $290 billion in fiscal 2001.

14 Congressional Budget Office, “Reducing the Deficit: Spending and Revenue Options,” March 2011.

15 Congressional Budget Office, “Reducing the Deficit: Spending and Revenue Options,” March 2011.

16 The savings for these options are from Congressional Budget Office, “Reducing the Deficit: Spending and Revenue Options,” March 2011.

18 House Committee on the Budget, “The Path to Prosperity,” April 2011. See also Rep. Paul Ryan (R-WI), “A Roadmap for America’s Future, Version 2.0,” January 2010.

21 For example, see Glen McDougall and Alasdair S. Roberts, “Commercializing Air Traffic Control: Have the Reforms Worked?” Suffolk University Law School, February 17, 2009.

22 This theme is explored in Chris Edwards and Daniel Mitchell, Global Tax Revolution (Washington: Cato Institute, 2008).

___________

Thank you so much for your time. I know how valuable it is. I also appreciate the fine family that you have and your commitment as a father and a husband.

Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733, lowcostsqueegees@yahoo.com

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