For the majority of our 235 years since the Declaration of Independence, the U.S. Government has played a limited role in the individual lives of its citizens.For the first 137 years there was no federal income tax.
For the first 159 years there was no form of social security.
For the first 190 years there was no form of government medical insurance.
Prior to the creation of these government programs, the U.S. public debt in constant dollars was essentially non-existent. Since that time, the public debt has exploded, particularly since the Reagan tax cuts of the 1980's and the Bush tax cuts of this past decade, and now threatens to exceed the current $14.3 trillion debt ceiling.
Of course, this is not sustainable. In fact, since 1940 the U.S. Government has run a surplus only twelve times. Clearly, 59 underfunded budgets out of 71 is not the basis for a prosperous future.
I remember writing letters to the editor in the 1980's complaining about the shocking size of the budget deficits under Ronald Reagan. The argument at that time, which by turn was referred to as "trickle-down economics" or "voodoo economics", was that the deficits were actually "investments in the future" which would yield wild surpluses in future years. However, "trickle-down" or supply-side economics failed to pay the dividends promised and huge deficits continued to be posted until a brief respite in the 1998 - 2000 period, followed by more deficits until today.
The total U.S. public debt is such that our government must constantly refinance a sum equivalent to nearly three quarters of a million dollars per U.S. household in order to avoid default. Where is all that money coming from, and what sort of interest rate are we going to have to pay to attract it in the future? At a 4% interest rate (the long-term average), the amount owed per household is about $30,000 per year. At a 10% interest rate, which has occurred 10% of the time, the amount owed per household per year is $75,000. Is that a wise or sustainable allocation of public resources?
Thankfully, it is not inconceivable for our nation to return to budget surpluses and begin to pay down the national debt to more manageable levels, but it is going to require a radical change in how we view the role of the Federal Government in our lives.
First of all, we must increase taxes, particularly on the highest earners in order to raise revenues.
Secondly, we must raise the Social Security retirement age to reflect increases in life expectancy since the program was created.
Thirdly, we must apply a means test to Social Security to avoid paying out government money to those who don't need it.
Finally, we must apply a means test to Medicare, and require those with the means to do so to secure private insurance and/or pay some form of an annual deductible.
All of these programs were created based on the argument that we are protecting the most vulnerable in our society from poverty, but they somehow came to be viewed "entitlements" owed to the society at large, including the wealthiest among us.
There is a fundamental change that must take place before we can alter our fiscal trajectory: we must stop feeling entitled to receive government transfer payments, and should instead treat those payments as a sort of "welfare check". In other words, if Uncle Sam writes you a check, it darn well better be because you can't live without it.
I recognize that many who have been paying into Social Security for decades will take umbrage to the notion that it no longer be treated as an individual entitlement or pension. However, Social Security was originally created as a plan to keep those who lived beyond their life expectancy out of poverty, and it is time that it go back to being what it was originally designed to be.
These proposals, if managed properly, will still provide for the needs of our elderly even as they force wealthier individuals to dig into their own savings to pay for their needs in their waning years.
However, failure to make these changes will inevitably lead to fiscal disaster and complete collapse of the social safety net.
