There are no "per se" tax or spending caps: lame duck negotiations no place for Medicare/Medicaid cuts

 by Linda Beale

There are no “per se” tax or spending caps: lame duck negotiations no place for Medicare/Medicaid cuts

When George W. Bush got reelected with a minority of the popular vote and contested state counts, the GOP claimed a mandate to keep going with the fiscally irresponsible program of high military spending combined with tax cuts particularly advantageous for their wealthy and corporate-owning supporters.
When Barack Obama got reelected with a clear majority of the popular vote and a resounding majority in the electoral college, the GOP says Obama has no mandate because the GOP managed to retain the House though Democrats in the House got more votes than Republicans in the House.
Anybody notice the partisan inconsistency there?

What we do know is that a majority of Americans–even lots of those Republicans who voted for Romney–want this Congress to preserve Medicaid and Medicare.  There is a huge effort by some–like the Peterson Institute, the Simpson-Bowles comedy tour, and right-wing propaganda tanks–to cast Medicare as impossible to sustain because of the current trend in health care costs.  The argument goes this way:

  • health care costs in the US are rising
  • the population that is eligible for Medicare in the using is rising as baby boomers age
  • Medicare costs will therefore inevitably increase
  • even though Medicare costs are rising less rapidly than non-Medicare health care costs (because of the ability of the government to mandate certain cost controls), those increases will eventually require significantly higher government outlays
  • the US has unprecedented levels of debt and annual budget deficits
  • the US spends too much compared to its tax revenues (the tax take is several percentage points less of the GDP than the spending percentage)
  • therefore the US can’t afford to pay those increasing amounts for Medicare health care costs
  • therefore we should cut back on eligibilty for, and benefits from, Medicare.

But this argument has several fatal flaws that include the following:

  • debt is extraordinarily cheap right now
    • if you can borrow at very low rates, it is better to borrow now than later
    • if you can borrow at very low rates and there are important projects on which to spend the money, the borrowed money acts as a stimulant to the economy
    • if the economy is stimulated by the borrowed money, the GDP growth will likely support continued low interest rates and faster revenue growth that will repay the debt faster
  • deficit spending by the government is vital when there isn’t private spending
    • and if the economy grows, private spending will grow and deficit spending can pull back
  • spending priorities have to be determined: 
    • there is no per se rule that higher spending is necessarily bad (though the right-wing in this country presupposes that there is and based almost all policy prescriptions on that presupposition, because the right-wing ideologically wants to divert public spending to its private pocketbooks)
    • there is no arbitrary and fixed percentage of GDP that is the “right” amount to be spent by the government on government programs
    • we spend too little now on public infrastructure ( public transporation, national roadways, electrical grids, and sewage systems are badly deteriorated), basic research (we have cut back on funding for NIH and NSF, major drivers of advancements in scientific and medical knowledge), and major priorities like combatting global warming/ supporting renewable energy
    • we spend too much now on the military (the military-industrial complex constitutes about 60% of the federal government)
    • we should support continued spending on Medicaid and Medicare, because those programs fill a vital need and serve the population well–we should not reduce benefits but rather increase them, at least for those who rely on Medicare/Medicaid as their primary or only health care plan
  • We’ve already built in various cuts to the spending for Medicare and Medicaid (possibly too much) and the question of what the costs will be ten years down the road depend in part on what else we do along those lines and how those things work out. See Editorial, Health Care Entitlements, New York Times (Nov. 29, 2012); Yves Smith, Naked Capitalism.
  • tax policy should be based on fairness in the way we raise revenues and spending priroities in the amount of revenues we raise
  • An equation that says “X (health care costs) is increasing and Y (Medicare coverage of health care costs) is increasing (because the number of people needing the program that pays for health care costs is increasing) and Z (taxes for coverage of health care costs) is increasing” and then concludes “therefore we must reduce Y” is using false logic: 
    • to maintain a relative constant, there are more options than “reduce Y” since the country could:
      • reduce X (move to single payer, as every other advanced nation has done, and halve the cost of health care)
      • increase Z (increase the tax support for Medicare, because it is a high priority that a majority of the citizens of our democracy support)

What we have to do is get away from the kind of thinking that seems to permeate so much of the discussion in Congress and in the media–that there are pre-set limits to how much we should borrow, how much we should spend, or how much we should raise in tax revenues.

The deficit hawks want us to think that the countnry will be just another Greece if we don’t rein in spending and debt and keep taxes low.  Traditionally our spending has ranged around 21% of GDP, but there is nothing magical about that number–it could rise to 24% or 26% without harm.  And we are not Greece, because we remain a powerful economy, one that can print our own money and one that commands interest from the global economy, so our debt (mostly caused by the Bush tax cuts combined with the Bush wars, and the Reaganomics deregulatory mania) is not an unbearable yoke around our necks.  We should be discussing the real needs of the country for infrastructure and provision of public goods and then figuring out how to pay for them with a combination of taxes and debt.

cross posted with ataxingmatter

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