There is no way around it. Any discussion about fixing the federal budget must begin with the “must pay” social programs. These programs, principally Social Security and Medicare/Medicaid, consumed 85% of all the money the government took in by way of taxes in 2023. Interest paid on the national debt absorbed the other 15%. That’s right – all the tax money the government received in 2023 was spent on just social programs and debt interest. The entire rest of the federal government, including the departments of Defense, Homeland Security, Justice, State, Transportation, Energy, Education, Agriculture, Interior, Labor, Housing and Urban Development, Veterans Affairs, and Commerce, all had to be funded with borrowed money. These numbers come straight from the Congressional Budget Office.
There is no mystery or complexity to understanding this accounting problem. The bottom line is that the government must spend less, much less, on the two costliest budget items, Social Security and Medicare/Medicaid. We cannot spend less on debt interest unless rates drop (unlikely in the near future) or the debt principal is paid down (extremely unlikely).
If this is so simple to understand, why hasn’t anything been done about it? It’s because only a handful of Congressman and Senators have the guts to even talk about it. The rest are too cowardly to even utter the words “Social Security or “Medicare” in a budget discussion, much less suggest they need to be drastically cut.
Instead, all they argue about is spending in other parts of government. From an accounting point of view, this is useless and a complete waste of time. It’s like saying you are going to rein in your $10,000/month spending habit by not buying a 10 cent piece of gum next month.
Worse, most Republican members of Congress and the Senate have given in to using liberal progressive language when talking about the budget. For example, they will say that extending the Tax Cuts and Jobs Act (a.k.a. the Trump Tax Cuts) which expires in December 2025 is too “expensive”. The psychology at work here is to normalize the level of government spending as being appropriate and baselined, and that the level of revenue the government takes in is not enough to meet that baseline (because of the Trump tax cuts).
The problem with this way of thinking is that it leads straight into an immutable arithmetic obstacle. Allowing the Trump tax cuts to expire won’t come anywhere near close enough to fixing the budget deficit. Nor would excessively raising income taxes on the “wealthy” as liberals are fond of shouting. The budget gap between spending and tax revenue is too large – there simply isn’t enough income out there to tax.
The reverse of that psychology is that spending levels need to be reduced to match a “baseline” amount of revenue received. However, this concept is somehow considered verboten. Why? After all, this is what the vast majority of us must do with our own personal finances.
There are several things that can be done to solve this problem. First and foremost is to vote out all the cowardly members of Congress, Republicans and Democrats alike, who are too afraid and/or too self-serving to address the calamitous social spending problem. Next would be for the House of Representatives to vote in a new Speaker at the start of the next Congress who is genuinely and fearlessly dedicated to reducing the cost of the social programs. Neither Kevin McCarthy nor Mike Johnson was suited to this task.
Finally, there needs to be a workable solution developed for the social programs that does not harm current recipients but fundamentally changes the way future recipients will pay for and consume these services. For Social Security at least, such a solution is in plain sight.
In the mid-1980’s, the government faced its own retirement pension problem for roughly three million federal employees. The older Civil Service Retirement System (CSRS) had become financially unsustainable, much like the present-day Social Security system. A new system was put in place, the Federal Employees Retirement System (FERS). This system transferred a significant portion of both the cost and responsibility for retirement away from the federal government and onto the individual via a variety of savings vehicles with government incentives. It was phased in over time to cause the least amount of disruption and has worked quite well. This is a ready-made and proven template for at least one way the Social Security system could be changed to greatly reduce costs.
The answer to reducing the cost of federal healthcare programs is a bit more complicated, but not out of reach. Broadly, it must involve three things:
- Transferring some of the cost burden from the government to the individual (just like the FERS program did for retirement).
- Allowing a much greater degree of competition among companies providing health care services and insurance coverage than currently exists.
- Dramatically simplifying the government’s role in healthcare administration to reduce the waste, inefficiency, and fraud that is so deeply embedded in the current system.
This is not rocket science as many politicians would have you believe. Nor would any of these changes have to be implemented in a way that would harm current recipients, as all the ad campaigns against such changes have historically charged. It’s all about the will to make it happen.
Any politician (Democrat or Republican) who claims the budget can be brought under control or balanced without drastically reducing spending on the social programs is lying. Ignoring the problem will lead to a devastating and painful reckoning when the ballooning interest payment on the continually increasing national debt eats into the money that is now being used to fund Social Security and Medicare. Most Americans handle their budgets and spending much more rationally than this. The federal government must start doing the same.