The Federal Budget Deficit
The national policy making process is often described as dysfunctional and in disarray. One can question this conclusion in regard to some policy-making areas; it is hard to deny in regard to the mounting national debt.
Our national debt has increased by leaps and bounds under both Republicans and Democrats. When George W. Bush took office it stood at $5.7 trillion; when he left office and Barack Obama took office it was at $10.6 trillion; today it is over $15 trillion.
Several efforts to reach a bipartisan solution have failed for lack of support. Meanwhile, President Obama and many Democrats largely focus on raising taxes on the very wealthy as an answer; most of the Republican presidential candidates and many congressional Republicans largely focus on cutting government programs and passing a balanced budget amendment to the Constitution as an answer. No one seems willing to make the tough choices that are needed.
As one who is committed to a biblical view of society and government, I here note two basic facts and then suggest two directions I believe an appropriate response ought to take.
Fact number one: If the present mix of revenue policies and spending patterns continues, federal government deficits will continue to increase and the national debt will continue to balloon, leading in the future to a major fiscal crisis. The poor and near-poor especially will be hurt, and government will have failed in its God-given task of promoting a just order and the common good.
Fact number two: The key cause of our current and projected deficits lies in increasing social security payouts and especially in the increasing health care costs of the Medicare and Medicaid programs. Any proposal that claims to deal with the long-term debt issue, but does not deal with these three programs, is not dealing with the underlying problem. Talk of taxing the rich, passing a balanced budget amendment, and getting rid of waste may play well on the campaign trail, but do not deal with the problem.
What then are the directions in which genuine solutions ought to move? I believe there are two.
Direction number one: Tax revenues need to be increased. This could be done simply by going back to the tax rates in place during the prosperous Clinton years of the 1990s. But a better course is to remove many of the current tax deductions, exemptions, and write-offs now found in an overly complex tax code. Simplifying the tax code could raise the needed revenues while actually lowering some tax rates. But in an imperfect world—with powerful special interest groups and their armies of lobbyists—changing the tax code runs the risk of introducing new inequities even as old ones are removed. In the real political world it may be safer simply to let the Bush tax cuts of 2001 expire in early 2013, thereby going back to the tax levels in place in the 1990s.
Whatever is done, tax deductions for charitable contributions, dependent children, and interest paid on home mortgages should remain in place. Civil society is a crucial part of a free, democratic society and is an aspect of God’s ordering of society. The tax deduction for charitable contributions is one way public policy encourages and strengthens civil society institutions without direct government intervention or support. Similarly, the tax deduction for children is an important way public policy encourages and supports stable families and recognizes their essential place in civil society. The tax deduction for interest paid on home mortgages is less clearly supported by Christian principles, but it indirectly supports families and makes possible their raising children in the stable environment that home ownership encourages.
Direction number two: Cuts must be made in social security and especially in Medicare and Medicaid. The challenge is to do so without denying genuinely needed services to many, that is, without violating the common good.
The changes in social security could include making some of the payments means tested for future retirees. But it is in Medicare (the government-run program of insurance for the elderly) and in Medicaid (the state-run and federal-government-subsidized program of medical care for the poor) where the biggest challenges lie and where the biggest reductions in projected increases in costs are needed. The answer is not to cap the money spent on Medicaid by the federal government as some have suggested, which merely pushes off onto the states the challenge of providing health care for the poor. Inevitably, the medical care one receives would be more closely linked to one’s income, which runs counter to the just order God calls government to promote. Many middle class elderly persons who need long-term nursing home care and have exhausted their financial resources would be hurt. (This group is one of the largest contributors to increasing Medicaid costs.) Nor do I believe turning Medicare into a private insurance plan, with the federal government subsidizing the insurance premiums, is an answer.
Instead, I believe we need to reduce the increasing costs of these programs, first, by moving more fully towards managed care systems. These could be full-fledged HMOs, Preferred Physician Organizations (PPOs), or some lesser forms of managed care, with primary care physicians serving as the gateway to more specialized, intensive care.
Also, some cities and areas have per person medical costs that are one-half or even less than those of other areas. The reason is not that persons in some areas are healthier than those in other areas or that they receive better medical care. Instead, the reason is that medical practices (such as the number and types of tests ordered and how quickly surgery is resorted to) vary greatly. Public policy should encourage high-cost areas to adopt more conservative medical practices.
What I offer here are hardly full-blown answers to the challenge of our mounting federal government debt; I do believe what I offer here points us in some important directions that will move us—in keeping with key Christian perspectives—towards those answers
Stephen V. Monsma
Regarding direction number one you state, “In the real political world it may be safer simply to let the Bush tax cuts of 2001 expire in early 2013, thereby going back to the tax levels in place in the 1990s.” Conservatives generally argue that either we should make the Bush tax cuts permanent or, at least, we should wait to raise taxes until the economic recovery is more secure. To put it in broad brush strokes, they claim that raising taxes on the wealthy at this time would stifle investment in innovation and inhibit job growth, both of which are desperately needed at this time, and presumably will be in 2013 as well. Secondly, they argue that the best way to increase tax revenue is to expand the economy, which harkens back to their point about not stifling investment by raising taxes. In what ways are conservatives wrong on these points with respect to their economic theory, assuming that we can all agree that economic growth, job growth, and increased federal revenues are desirable goals at this time?
Regarding direction number two you said that cuts must be made to the three major entitlement programs; however, you argued against “turning Medicare into a private insurance plan, with the federal government subsidizing the insurance premiums….” Would you comment further on why this kind of change would work against public justice? In an article entitled, “Help the Sick and Reduce the Debt: The Moral Economy of the Health-Care Debate” (Ethics & Public Policy Center, Posted 9/30/11), Yuval Levin addresses, among other problems, the growing number of uninsured persons in the U.S. He writes, “More and more Americans are uninsured, even as the cost of paying for our existing health insurance programs is growing so large that it risks crushing the economy.” He goes on to say that Democrats tend to focus on the the first problem, lack of coverage, while Republicans tend to focus on the second problem, rising costs of government-provided coverage. Both are valid concerns and both deserve serious attention. But, Levin asks, does focusing on one of them inevitably make the other worse? He ultimately argues that well regulated markets will find efficiencies better than any other mode of organizing the health care sector. Though the market will still produce many problems and rationing of some kinds will still occur, it will be better than any kind of central planning involving price controls and other elements. Levin writes that the “fee-for-service structure of Medicare….which pays doctors by how much they do rather than how efficiently they work” contributes to the inefficiencies of our opaque and over-managed system.
Don’t we need substantial policy changes to Medicare that shift the incentive structure away from the kinds of excesses that the current fee-for-service system encourages? Would not a premium subsidy program shift these incentives to some extent? What do you see as the most harmful consequences to such a change? Doesn’t Medicare’s lack of sustainability over the medium and long-term necessitate drastic changes if we are to expect to have it at all in the future?
Regarding direction number one you state, “In the real political world it may be safer simply to let the Bush tax cuts of 2001 expire in early 2013, thereby going back to the tax levels in place in the 1990s.” Conservatives generally argue that either we should make the Bush tax cuts permanent or, at least, we should wait to raise taxes until the economic recovery is more secure. To put it in broad brush strokes, they claim that raising taxes on the wealthy at this time would stifle investment in innovation and inhibit job growth, both of which are desperately needed at this time, and presumably will be in 2013 as well. Secondly, they argue that the best way to increase tax revenue is to expand the economy, which harkens back to their point about not stifling investment by raising taxes. In what ways are conservatives wrong on these points with respect to their economic theory, assuming that we can all agree that economic growth, job growth, and increased federal revenues are desirable goals at this time?
Regarding direction number two you said that cuts must be made to the three major entitlement programs; however, you argued against “turning Medicare into a private insurance plan, with the federal government subsidizing the insurance premiums….” Would you comment further on why this kind of change would work against public justice? In an article entitled, “Help the Sick and Reduce the Debt: The Moral Economy of the Health-Care Debate” (Ethics & Public Policy Center, Posted 9/30/11), Yuval Levin addresses, among other problems, the growing number of uninsured persons in the U.S. He writes, “More and more Americans are uninsured, even as the cost of paying for our existing health insurance programs is growing so large that it risks crushing the economy.” He goes on to say that Democrats tend to focus on the the first problem, lack of coverage, while Republicans tend to focus on the second problem, rising costs of government-provided coverage. Both are valid concerns and both deserve serious attention. But, Levin asks, does focusing on one of them inevitably make the other worse? He ultimately argues that well regulated markets will find efficiencies better than any other mode of organizing the health care sector. Though the market will still produce many problems and rationing of some kinds will still occur, it will be better than any kind of central planning involving price controls and other elements. Levin writes that the “fee-for-service structure of Medicare….which pays doctors by how much they do rather than how efficiently they work” contributes to the inefficiencies of our opaque and over-managed system.
Don’t we need substantial policy changes to Medicare that shift the incentive structure away from the kinds of excesses that the current fee-for-service system encourages? Would not a premium subsidy program shift these incentives to some extent? What do you see as the most harmful consequences to such a change? Doesn’t Medicare’s lack of sustainability over the medium and long-term necessitate drastic changes if we are to expect to have it at all in the future?
Regarding direction number one you state, “In the real political world it may be safer simply to let the Bush tax cuts of 2001 expire in early 2013, thereby going back to the tax levels in place in the 1990s.” Conservatives generally argue that either we should make the Bush tax cuts permanent or, at least, we should wait to raise taxes until the economic recovery is more secure. To put it in broad brush strokes, they claim that raising taxes on the wealthy at this time would stifle investment in innovation and inhibit job growth, both of which are desperately needed at this time, and presumably will be in 2013 as well. Secondly, they argue that the best way to increase tax revenue is to expand the economy, which harkens back to their point about not stifling investment by raising taxes. In what ways are conservatives wrong on these points with respect to their economic theory, assuming that we can all agree that economic growth, job growth, and increased federal revenues are desirable goals at this time?
Regarding direction number two you said that cuts must be made to the three major entitlement programs; however, you argued against “turning Medicare into a private insurance plan, with the federal government subsidizing the insurance premiums….” Would you comment further on why this kind of change would work against public justice? In an article entitled, “Help the Sick and Reduce the Debt: The Moral Economy of the Health-Care Debate” (Ethics & Public Policy Center, Posted 9/30/11), Yuval Levin addresses, among other problems, the growing number of uninsured persons in the U.S. He writes, “More and more Americans are uninsured, even as the cost of paying for our existing health insurance programs is growing so large that it risks crushing the economy.” He goes on to say that Democrats tend to focus on the the first problem, lack of coverage, while Republicans tend to focus on the second problem, rising costs of government-provided coverage. Both are valid concerns and both deserve serious attention. But, Levin asks, does focusing on one of them inevitably make the other worse? He ultimately argues that well regulated markets will find efficiencies better than any other mode of organizing the health care sector. Though the market will still produce many problems and rationing of some kinds will still occur, it will be better than any kind of central planning involving price controls and other elements. Levin writes that the “fee-for-service structure of Medicare….which pays doctors by how much they do rather than how efficiently they work” contributes to the inefficiencies of our opaque and over-managed system.
Don’t we need substantial policy changes to Medicare that shift the incentive structure away from the kinds of excesses that the current fee-for-service system encourages? Would not a premium subsidy program shift these incentives to some extent? What do you see as the most harmful consequences to such a change? Doesn’t Medicare’s lack of sustainability over the medium and long-term necessitate drastic changes if we are to expect to have it at all in the future?
I appreciate the thoughtful, probing questions you raise here. They are a good example of the “respectful conversation” this project is seeking to promote. You raise two questions and I will seek to respond to each of them in turn.
The first question raises the point conservative often make that an expanding, growing economy results in increased revenues and that increasing taxes discourages an expanding, growing economy. Thus raising taxes is likely to lead to less, not more revenues to meet current deficits. There is truth in these observations. A tax rate of 100% would yield no revenues for government, as no one would have an incentive to engage in economic activities and the economy would collapse. But it is also, of course, true that a tax rate of 0% would yield no revenues. Thus the question becomes what is the optimal tax rate that will yield the revenues government needs for the programs we all desire and which, at their best, promote a more just order in society. Are current federal tax rates are so high (or would be so high if the Bush tax cuts are allowed to expire as I suggest in my essay) that they are stifling (or would stifle) economic growth, or are they low enough that raising them would yield additional revenue without stifling economic growth?
Merely posing the question in these terms demonstrates why often persons who share a commitment to the same Christian principles nevertheless often come to different conclusions. The need for prudence in applying basic Christian principles in making policy choices is clearly needed. The chief reason why I personally believe taxes can be raised—or, more accurately, go back to an earlier level—is that historically the economy has grown and prospered when tax rates were higher than what they are now. Both the 1980s, during the latter Reagan years, and the 1990, during the Clinton years, are examples. Many claimed that when taxes were raised in 1982 under Reagan and in 1993 under Clinton the economy would suffer. It did not. That is, of course, no guarantee that raising taxes in 2013 would not have negative effects on economic health—conditions in many ways are different—but at the least it suggests to me that the burden of proof rests with those who claim that increased taxes would harm the economy in 2013 while it did not in 1982 and 1993. I have heard no economist offer a convincing case to that effect.
And that must be weighed against the fact that erasing, or even significantly reducing, the federal budget deficits entirely by cutting expenditures and hoped for revenue increases by way of a growing economy are too big a gamble.
The second point you raise is that perhaps the best way to reduce Medicare costs is by building in more market mechanisms, which would then lead to efficiencies that will reduce medical costs. Moving Medicare towards reliance on private insurance with government subsidies is one such mechanism. You are right that I quickly dismissed this answer to increasing medical costs. My thinking behind my doing so is that market mechanisms do not work well in the medical field. It is one thing to shop around for the lowest cost with buying a new car or to wait a year to buy the newest Apple product in the hope the price will come down. It is quite another thing to shop around for the cheapest hospital when one needs open heart surgery or to put off a new screening test for cancer in the hope that the cost of the new technology will come down. And shopping around for the cheapest health insurance carries with it the same problem. When one’s child or when one’s spouse is ill we all, understandably, want the best and fear that cost shopping will lead to less than the best.
I agree we need to move away from the strict fee-for-service system which is susceptible to abuse both by patients and providers. That is why I suggested in my essay that a better way to control health care costs is to move away from the strict fee-for-service system and towards various forms of managed care systems, with primary care physicians, in consultation with individual patients, acting as the gatekeepers. The better HMOs such as Kaiser Permanente, as well as the Cleveland Clinic and the Mayo Clinic, are examples of the possibility to control health care costs without reducing the quality of care under managed care systems.
There is much more one could say on the two issues you raised. I hope these all-to-brief responses of mine my help to clarify why I have taken the positions that I have.
Thank you very much, Dr. Monsma, for addressing both parts of my post. I wanted to follow-up briefly on your response to Medicare reform. Your foundational statement seems to be that "market mechanisms do not work well in the medical field." Working logically from that premise, two propositions come to mind: 1. senior citizens are unique in their needs for medical care to the extent that they warrant a single-payer system like Medicare, but the same is not necessarily true for the country as a whole; or 2. a single-payer system similar to Medicare (including the reforms toward a managed care structure you highlighted above) for all Americans would be the best option for justice to be done (both in terms of controlling costs and providing access to care). If proposition 1. is not true, it seems that 2. would likely be true. Is a single-payer system the direction you would ultimately like to go (if not for the present political constraints associated with it) to provide access to care and address our fiscal challenges?
Thank you very much, Dr. Monsma, for addressing both parts of my post. I wanted to follow-up briefly on your response to Medicare reform. Your foundational statement seems to be that "market mechanisms do not work well in the medical field." Working logically from that premise, two propositions come to mind: 1. senior citizens are unique in their needs for medical care to the extent that they warrant a single-payer system like Medicare, but the same is not necessarily true for the country as a whole; or 2. a single-payer system similar to Medicare (including the reforms toward a managed care structure you highlighted above) for all Americans would be the best option for justice to be done (both in terms of controlling costs and providing access to care). If proposition 1. is not true, it seems that 2. would likely be true. Is a single-payer system the direction you would ultimately like to go (if not for the present political constraints associated with it) to provide access to care and address our fiscal challenges?
Thank you very much, Dr. Monsma, for addressing both parts of my post. I wanted to follow-up briefly on your response to Medicare reform. Your foundational statement seems to be that "market mechanisms do not work well in the medical field." Working logically from that premise, two propositions come to mind: 1. senior citizens are unique in their needs for medical care to the extent that they warrant a single-payer system like Medicare, but the same is not necessarily true for the country as a whole; or 2. a single-payer system similar to Medicare (including the reforms toward a managed care structure you highlighted above) for all Americans would be the best option for justice to be done (both in terms of controlling costs and providing access to care). If proposition 1. is not true, it seems that 2. would likely be true. Is a single-payer system the direction you would ultimately like to go (if not for the present political constraints associated with it) to provide access to care and address our fiscal challenges?
Mr. Berkeley,
I appreciate the opportunity to continue our “respectful conversation.” To understand my thinking in the health care area one needs to take into account the almost incredible complexity of our current system. It is huge—constituting a significant portion of our entire economy—and it has a host of crosscutting needs and vested interests. That is why my Burkean conservative tendencies tell me that incremental change is usually to be preferred over radical departures from current policy. Even apart from what is politically possible, God has not given us the foresight and wisdom needed to guarantee that a largely new health care system would not have even greater problems than the current one.
That is why I fear replacing the current Medicare system—which in the short term is working well for me and millions of other seniors—with a private insurance approach with built-in market mechanisms. In some ways seniors are unique in that they, on average, have greater medial needs than younger persons and may be even less adept at making market mechanisms work for them than is the general population. But, as I wrote earlier, the current Medicare system is financially unsustainable. Thus I favor moving Medicare towards a managed care system. To me this is an incremental change that we can enact, experience the ways in which it is and is not working well, and make needed adjustments. I prefer this over the more radical shift to private insurance (with government subsidies) and reliance on market mechanisms.
On similar reasoning I do not now favor moving towards a single-payer system, or “Medicare for everyone” as some have put it. This too would be a sharp break with current policy with unknown consequences. Thus I favor, in general outlines, the approach taken by President Obama’s health care act. Everyone must carry health insurance (a responsible, prudent act in any case), but the actual insurance is provided for the most part by private insurance carriers. It largely takes the present system and expands it (admittedly by force of law) to include those now outside the system. Again, we can see how this approach works and make adjustments as needed. Some day we might conclude a single-payer system is needed, but in my thinking that conclusion is way down the road, only after first trying less radical approaches.
Stephen Monsma
Mr. Berkeley,
I appreciate the opportunity to continue our “respectful conversation.” To understand my thinking in the health care area one needs to take into account the almost incredible complexity of our current system. It is huge—constituting a significant portion of our entire economy—and it has a host of crosscutting needs and vested interests. That is why my Burkean conservative tendencies tell me that incremental change is usually to be preferred over radical departures from current policy. Even apart from what is politically possible, God has not given us the foresight and wisdom needed to guarantee that a largely new health care system would not have even greater problems than the current one.
That is why I fear replacing the current Medicare system—which in the short term is working well for me and millions of other seniors—with a private insurance approach with built-in market mechanisms. In some ways seniors are unique in that they, on average, have greater medial needs than younger persons and may be even less adept at making market mechanisms work for them than is the general population. But, as I wrote earlier, the current Medicare system is financially unsustainable. Thus I favor moving Medicare towards a managed care system. To me this is an incremental change that we can enact, experience the ways in which it is and is not working well, and make needed adjustments. I prefer this over the more radical shift to private insurance (with government subsidies) and reliance on market mechanisms.
On similar reasoning I do not now favor moving towards a single-payer system, or “Medicare for everyone” as some have put it. This too would be a sharp break with current policy with unknown consequences. Thus I favor, in general outlines, the approach taken by President Obama’s health care act. Everyone must carry health insurance (a responsible, prudent act in any case), but the actual insurance is provided for the most part by private insurance carriers. It largely takes the present system and expands it (admittedly by force of law) to include those now outside the system. Again, we can see how this approach works and make adjustments as needed. Some day we might conclude a single-payer system is needed, but in my thinking that conclusion is way down the road, only after first trying less radical approaches.
Stephen Monsma
Mr. Berkeley,
I appreciate the opportunity to continue our “respectful conversation.” To understand my thinking in the health care area one needs to take into account the almost incredible complexity of our current system. It is huge—constituting a significant portion of our entire economy—and it has a host of crosscutting needs and vested interests. That is why my Burkean conservative tendencies tell me that incremental change is usually to be preferred over radical departures from current policy. Even apart from what is politically possible, God has not given us the foresight and wisdom needed to guarantee that a largely new health care system would not have even greater problems than the current one.
That is why I fear replacing the current Medicare system—which in the short term is working well for me and millions of other seniors—with a private insurance approach with built-in market mechanisms. In some ways seniors are unique in that they, on average, have greater medial needs than younger persons and may be even less adept at making market mechanisms work for them than is the general population. But, as I wrote earlier, the current Medicare system is financially unsustainable. Thus I favor moving Medicare towards a managed care system. To me this is an incremental change that we can enact, experience the ways in which it is and is not working well, and make needed adjustments. I prefer this over the more radical shift to private insurance (with government subsidies) and reliance on market mechanisms.
On similar reasoning I do not now favor moving towards a single-payer system, or “Medicare for everyone” as some have put it. This too would be a sharp break with current policy with unknown consequences. Thus I favor, in general outlines, the approach taken by President Obama’s health care act. Everyone must carry health insurance (a responsible, prudent act in any case), but the actual insurance is provided for the most part by private insurance carriers. It largely takes the present system and expands it (admittedly by force of law) to include those now outside the system. Again, we can see how this approach works and make adjustments as needed. Some day we might conclude a single-payer system is needed, but in my thinking that conclusion is way down the road, only after first trying less radical approaches.
Stephen Monsma