Thursday, August 4, 2011

Opinion On Program Cuts

There will be cuts of some sort to federal spending later this year.  With each side having sacred cows (Defense and Medicare) slated for the sacrifical altar if the double secret super-duper commission cannot come to a consensus solution for trimming the budget, it is pretty safe to assume that almost everything else will be open for discussion, if not necessarily for cuts (Social Security being the obvious candidate to remain sacrosanct).

Disclaimer: I do not know the current outlays for various programs, so I will not be dealing with hard numbers.

Clearly, I am willing to trim most things in order to preserve Defense, but I'm not naive enough to think that there won't be cuts there as well.  I'm also a big believer in grants and loans for education, and I would not going to cut that funding either if it can be avoided.  Short term, obvious targets seem like the government programs which accomplish very little for the money spent--some of the more outlandish EPA enforcement issues, many agricultural and industrial subsidies, and all the redundant bureaucracies.  Is there a reason why TSA has to be a separate entity from the DOT?  How much money is saved by folding one department into the other, even if no one is actually let go?  I'm wagering it makes for more than a rounding error and would be a mostly painless step for those employees.

Incidentally, I'm mildly upset by the change to the loan program in the debt compromise, to wit the loss of having a portion of federal loan interest being subsidized for grad students.  The total amount of money available to grad students is unchanged, but the loans did just become a little more expensive in terms of repayment for those who take them.  I have no idea what that program cost the federal government, but I'm betting it's a pittance compared to what needs to be slashed from total expenditures.  Still, I did benefit from the program when I was in school, and I would like it to have stuck around for future students.

So, long term, where should the fat be cut out?  As this columnist rightly pointed out, start with the biggest programs around.  (H/t to AoS HQ where I originally saw this linked, long since disappeared from the sidebar there.)  Until someone grabs the third rail of politics and holds on long enough to actually change its trajectory, this problem will continue.  The age for full benefits for Social Security must be raised, and the benefits themselves probably should be cut.  When the program was implemented, 1 in 7 people lived long enough that they reached the age for full benefits.  Today, the average man will make it at least a decade past 65, and the average woman even longer, and if anything the average lifespan will only lengthen.  I'm not suggesting that we cut Grandma off at the knees; there are ways to do this reasonably.

For example, preserve the current plan for everyone already retired or close to retirement, say 60 years or older.  Do an across the board cut of benefits by some amount, let's say 10%, for anyone under the age of 60.  Change the reitrement age for anyone currently under the age of 55, so that going forward it increases by one year every other year until the age is raised by 10 years.  Finally, add in some means testing that scales based on reported income, so that the most well-off seniors do not receive as much, because frankly they don't need it.

Let's say this is approved sometime next year, but will start in 2015, government inertia being what it is (and makes it a little easier for me to do the math here).  Anyone born before 1955 is grandfathered in to the current age/percentage benefits calculations.  Anyone born before 1960 still gets full benefits (though those benefits are 10% less than previously) at age 65.  In 2025 the retirement age goes to 66, in 2027 the age goes to 67, etc.  So, for example, in 2035 the retirement age becomes 71, and anyone born before 1965 can get the full benefits.  By the time 2043 rolls around, the retirement age is up to 75 for full benefits.  One doesn't need to be an actuary to know that such a regime would save money.  I also doubt such a plan could pass in the current political environment, probably an increase in age by 1 year every third year is more realistic, as well as an increase in the age to 70 for full benefits.  But it would be interesting to see the CBO game some numbers for plans like this and see how much savings it creates.

Then again, with how horrible things look right now, candidates who run on platforms of gradual changes to entitlement programs and not altering the programs for those already enrolled in them may have a chance in 2012--and that's a mandate I'd like to see.

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