Name a problem and the root cause can too often be found in apathy. The problem with education isn’t the teachers or the curriculum; it’s the lack of parent involvement at home, at school, and at the ballot box. The problem with healthcare isn’t that we need more money for treatment; it’s society’s apathetic view on health. Want to cure diabetes? Stop filling up the 44oz cup after filling up the car. Eat vegetables and fruit instead of calling out for Pizza. Want to stop the government from continuing the deficit spending? Support those congressmen who will stop government growth beyond the available budget. More people need to be informed on government revenue and spending and then talk, text, and blog about it. And vote! Logical people, sufficiently informed, tend to reach a consensus. It’s my belief that Obamacare will energize people to learn more about government spending, hence the cure.
The title is no typo; this blog is not about the affordable health care act. There’s already too much good and bad, true and false written about that tired subject. This blog was inspired by the series of events caused by the purported cost and unpopularity of Obamacare which led to today’s relatively non-consequential government shutdown, or more aptly – “slimdown.” It’s my guess that the following will provoke more questions than it answers and many will question the numbers. That’s what Google is for. The data for the following was taken from USGovernmentSpending.com and the numbers presented there were obtained from government sources. It’s a bit pathetic that sighting government sources doesn’t inspire confidence.
Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. GDP is the best number to which other numbers can be compared in order to get a present value relative ratio. The following is a chart for the GDP in trillions of dollars since 1930.
1945 2 (WWII)
Let’s talk Taxes: The federal income tax law was signed into law October 3, 1913. It’s a bit poetic that we’re on the cusp of celebrating the 100th anniversary of personal income tax during the present government shutdown, which is ultimately about taxes. Federal revenue is a mix of taxes and fees. Taxes are assessed on income; fees are assessed regardless of income. The shutdown is the result of congress failing to agree on how to budget the expenditure of a revenue stream generated by taxes and fees paid by Americans.
Tax Revenue: Federal Government revenue for 1900 was about 2.7% of GDP. By 1930 the percent of GDP taken by the Federal Government had doubled to 5%. It reached a high of 45% in 1945 (WWII). By 1950 the percent of our economy taken into the Federal Government coffers had been reduced to 15%, where it has hovered since. Important to note is that historically, GDP grows at a faster rate when the government takes less. President Kennedy was the first President to recognize and acknowledge the inverse nature of tax rates and revenue . Also keep in the mind the annual growth of the GDP; the revenue sent to DC has grown exponentially year after year. There’s no lack of money. So, where is the money spent?
Spending and Debt: Historically, government spending has spiked during periods of traditional war. The first federal debt was established in the 1790s by Alexander Hamilton, the first secretary of the treasury, one of America’s founding fathers, and as a result of political bickering, killed in a duel by former Vice President Aaron Burr. The treasury sold bonds to pay for the Revolutionary War; it’s estimated the debt at that time was 35% of GDP. This debt was paid off by the 1830s. Along came the Civil War and debt soared to 33% of GDP, but this was paid down before the turn of the century. During WWI the debt reached 20% and was paid off in the 20s. Due to federal spending during the Great Depression, the debt stood at 45% of GDP by 1941 and then soared to a record high of 122% by 1945. This time the debt was never paid off but was rapidly reduced in the years following WWII and then began to ratchet back up to over 50% during the Cold War. The debt is now estimated to be over 70% of GDP.
Considering we’re at war, 70% may not sound bad. After all we were well over 100% during WWII. Let’s take a closer and more current look.
Is War the big drain on the government coffers today? No, and I’ll explain. Spending on defense, as a percent of GDP, is near the historical low of the 1990s. Then what is the primary cause of deficit spending and the increase in debt? Glad you asked.
Entitlements: At the beginning of the 20th century, the federal government spending on pensions, healthcare, and welfare was less than ½ of 1 percent; a tiny fraction of the GDP. During the Great Depression that number grew to 2% of GDP. This number grew to 5% by 1960, primarily due to the increase in social security payments. With the addition of Medicare and Medicaid, the entitlement number grew to 11% by 1975 and now exceeds 20% of GDP. Since the average age of Americans is increasing, this number will continue to expand exponentially, unless changes are made.
Before honest debate on the debt problem can occur, everyone must first recognize the primary driver of the debt; entitlements. How do we get this under control?
The answer to this is relatively obvious and simple but the implementation will require a few politicians to fall on the proverbial sword. A reduction in entitlements will not be popular. Here are a few suggestions to consider.
- The age at which social security benefits begin must be extended; people are living longer so they can be expected to contribute to SS longer or at least delay the receipt of benefits. This just make sense and the result will be a solvent SS for well into the next century.
- Welfare and disability recipients should be regularly evaluated for drug abuse. This will have no effect on the deserving and could force marginal recipients to practice better health.
- Drug companies should be rewarded for finding cures. This funding will need to come from the government since drug company profits depend on selling drugs for treatment. Cure is the antithesis of treatment. Treatment drives stock prices; cure does not.
- Tort Reform will reduce the cost of healthcare by reducing the operating costs to healthcare providers, eliminate unnecessary testing, and allow Doctors to practice medicine rather than comply with insurance regulations.
We were all told of how devastating a government shutdown would be. Well, we now know that it isn’t that bad. Since 1981 there have been 11 government shutdowns. On average, the stock market gained ground and the economy benefited each time. Time will tell if this shutdown results in any ill effects.
It’s my guess that the adoption of a few of the items listed above will have favorable and durable results. These ideas aren’t new and they’re not the only changes that should be developed and adopted. If the result of Obamacare is more people talking, texting, and discussing solutions, and less voter apathy, then it (Obamacare) might well be the cure.
Presently, America is up the proverbial creek and paddles are becoming scarce.