Monday, November 19, 2012

Politicians get ready to make heavy cuts...Not

Sen. Bernie Sanders (I-Vt.) said he wanted to "send a very loud and very clear message to the leadership … in the White House" not to cut Social Security, Medicare or Medicaid.

Senate Health Committee Chairman Tom Harkin (D-Iowa) said Thursday "when it comes to Social Security, Medicare and Medicaid, the American people told us to protect and strengthen these programs, not cut them".

Medicaid, Medicare and Social Security was 41% of Government expenditures in 2011.  Unemployment and other entitlements accounted for another 15% so a full 56% of expenses are apparently off the table for cuts.  What  remains is discretionary spending at 18% (this is education, infrastructure, law enforcement, judiciary etc), which no-one seems enthusiastic to cut, and  interest expense was 6% and this cannot be cut.  That leaves 20% of expenses on defense that Democrats profess to want to cut, but given the loss of jobs this would entail, are quite happy to have the Republicans take the blame for not cutting it.

So where exactly do Messrs. Sanders and Harkin et al want to cut costs?

In 2011 we spent $3.6T and had revenues of $2.3T for a deficit of $1.3T.  Healthcare, social security, other entitlements, and interest expense alone exceeded tax revenues: meaning even if we cut every other expense to zero (e.g. no defense spending whatsoever for example) we would still have had a deficit.

For those who think Obama's tax plan will be the answer please do some basic math.  The new taxes he has proposed are forecast to bring in $1.6T over 10 years.  While this may be gratifying to the socialistic tendencies of the baying masses he has unleashed it is not, unfortunately, a solution.

First of all we all know that Government expenses are always higher than forecast and revenues are lower (think Solyndra).

Secondly, the deficit in 2011 alone was $1.3T .  As such $1.6T of incremental taxes over ten years doesn't begin to solve the problem

For an excellent summary please see here for the recent report by Mary Meeker to familiarize yourself as to why

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