Solving the Entitlement Dilemma
The bulk of the federal government’s spending goes towards entitlement programs such as social security, Medicare and Medicaid. This leaves the federal government on average with about $200B to $400B for all other programs (depending on the health of the economy). Needless to say, it’s no wonder the government has been running a federal budget deficit as our entitlement programs and debt payments eat up most of the revenues before any dollar can be spent on education, defense, environmental programs, etc. 
So if we’re serious about tackling the budget deficits and national debt we need to come up with some viable solutions. We can cut spending, including into the entitlement programs, but spending cuts alone won’t do the trick as the programs will run a 45% deficit over the next 75 years at current dollars. Making cuts that drastic would hurt the economy as it would bankrupt hospitals, doctors and other medical related businesses as they won’t be covered in full. Cutting social security by that much would result in a drastic increase in poverty for our seniors and that would become an enormous burden for the individual States.
What’s the solution(s)?
The success of the entitlement programs are heavily depended on the success of the economy overall. If the economy is doing well it would mean that pay-roll taxes are up and would therefore provide funding for the programs. However, we need to be realistic and understand that recessions are part of the economic cycle and thus we should account for swings in funding over the upcoming decades.
Cuts into the Program
Social Security
Under normal circumstances this would be considered political suicide for just about any politician, unless your name is Rand Paul. However, what I’m referring to is changing the law so that entitlement payments such as social security are not going to be paid out to well-to-do Americans. It makes no sense that a multi-millionaire receives $2,000 social security checks upon retirement. It’s a tax-payers waste of money and goes against what the program was meant to be; a safety net for retirees that do not have enough money to live on! 
Therefore, we should be facing out social security for the richest Americans and set a benchmark at which the government calculates your payments based on your net worth at retirement. On average social security pays 53 million people every month for an average check amount of $1,072.20 as of September 2010.
28% of all households makes more than $75k per year and the vast majority of those will have enough savings come retirement to live comfortable enough without social security benefits. If we assume that 2/3 of this income bracket would not need social security to survive that means roughly 9.5 million retirees would not need benefits on a monthly basis. This means savings of about 10B – 11B per month. Guess what? We can keep social security solvent well into the 22nd century this way without having to raise the retirement age or an increase in payroll taxes.
Medicare / Medicaid
In my prior blog (4 Ways to Bankroll America’s New Infrastructure) I noted that fraud in the Medicare/Medicaid programs cost the U.S. tax payer on average about $60B per year. if the government could set up a better enforcement agency at a cost of about $5B per year that would still save the tax payer about $55B per year in fraudulent charges.
Just the savings alone will keep the entitlement programs solvent well into the 22nd century without having to raise payroll taxes or making cuts in benefits. Instead of having a half a trillion dollar deficit in 2040 for these programs you’d actually have a surplus.
Now, you will need to make additional changes to the program in order to keep the program viable during economical downturns and to keep up with the cost of inflation. Additional measures that can be taken are:
- Tort Reform – I know, not very popular with Democrats, but there are some very simple measures that can be taken to at least reduce the cost in half. Currently 2% of all medical expenses can be contributed to legal costs. If we can cut that number in half to 1% than I think both parties will be satisfied in the long run. It would need to include a provision that protects doctors, but forces them to cut back on unnecessary tests.
- Preventive Measures – This one is highly controversial, but why should a healthy person be penalized for someone that weighs 350lbs with diabetes and blood pressure issues that costs the health care system an enormous amount of money? Programs need to be made available for people to become healthy and if they don’t; they need to be penalized in the form of a tax penalty on their insurance/taxes.
Tax Increases (?)
If all measures are adapted as described above there won’t be a need to increase payroll taxes. However, the government should set a benchmark that if savings aren’t met at certain intervals during the program then payroll taxes will go up and be split evenly between companies and employees. it would serve as an incentive for everyone to get involved so that we don’t have to raise taxes at all.
