The Thinker

Suck it in, America

As you may recall, President Obama ran for office by saying that he would not raise taxes on the middle class. Recently in a town hall meeting in Shaker Heights, Ohio, he also said that he would not sign a health insurance bill if it added even one dime to our deficit over the next ten years. Presumably, paying for all these new programs cannot be done solely through taxing the rich and by ending wasteful government programs. Every president in my memory has said they will cut government waste. None of them succeeded in any meaningful way because Congress would not allow it.

Polls show public nervousness about the cost of all these new initiatives as well as our record deficit spending. This nervousness is understandable. As I noted back in 2003, civilization does not come cheap. The gap though between our needs and our resources has probably never been wider. All sorts of bills are coming due. The vast majority of Americans want health insurance reform but are also frightened by how much it costs. Granted they are also frightened about losing their health insurance. If they have health insurance, they are worried about whether they can afford to keep it.

Other bills for our Great Society are coming due. Medicare may get high marks from seniors, but it requires huge subsidies to keep it solvent. Medicaid is also costly and during this recession, its costs are more than the states can bear. This year, for the first time in its history, Social Security will give out more money than it collects. It remains solvent since it has large amounts of government securities it can cash in. Nevertheless, in twenty or so years time if nothing changes the Social Security system will be requiring subsidies just like Medicare. Then there are all those other fixed obligations, like civil service pensions for people like me, which the government may not default on as well.

Hitherto, we have been largely successful in hiding the cost of government through additional borrowing. Unlike the State of California, the federal government can print more money to pay expenses. By doing so of course, it only cheapens the value of the currency, making all our assets worth less and feeding inflation. Understandably, the Treasury prefers to borrow the money rather than create it. Our principle creditor, China, is one of many wondering if putting their foreign reserves in American dollars is still a smart thing.

To paraphrase Bilbo Baggins, the United States Government is like too little butter being spread over too much bread. Government needs to do something it doesn’t like to do: govern competently. In a perverse way, all the deficit spending we accumulated may finally force the conversation about just how big a government we actually are willing to have. The real question is this: do we raise taxes to pay for the government we want, or do we take a meat cleaver to our government instead? We are reaching the point where we will have to do one or the other. We are reaching the end of trying to borrow our way out of making hard choices.

I am sure most conservatives out there are hoping for the “liberal” use of a meat cleaver. The irony though is though that Republicans and reputed conservatives actually in government do not really want to shrink the size of government. They want it to grow. They cannot come out and actually say it but this is in effect what their votes have demonstrated over the years. Every Congressman is in favor of cutting services in other districts, but want to expand them in their district. We saw this absurdity played out last week. Conservative “Blue Dog” Democrats were trying to restrain the cost of health insurance reform, while writing in provisions to raise Medicare reimbursement rates for their own rural districts.

Barring a constitutional convention, the only way to make unpopular decisions is to come up with a mechanism where it can be done without your senator or Congressional representative taking the heat. It worked before with the Base Realignment and Closure Commission, which decided which military bases to close subject only to congressional override. Something similar has been proposed as a way to pay for health insurance reform: have a panel of experts decide what care should be paid for and what reimbursement rates are reasonable subject only to a congressional override. It’s a good idea because it recognizes the reality that when given the opportunity Congress will choose pandering to governing.

Conceptually this is a great model that should be extended to much of government. However, if you do too much of it, you wonder what is the point of having a legislature at all. Our representatives are supposed to be making hard choices instead of avoiding them.

Another possible solution would be campaign finance reform. At least this way a congressional representative would feel freer to vote their conscience rather than placate the sponsors that fund their campaigns. Attempts have been hit or miss, but more importantly, our Supreme Court as it is currently constituted seems hostile to the very idea. This means, of course, that nothing will change and those who provide large campaign contributions will receive a disproportionate share of the federal largess.

This implies, perversely, that the easiest solution for paying for the cost of government is to raise taxes. Granted the idea in general causes hives among most members of Congress. What choice do we have, really? We can either make sure our revenues meet our expenditures or we will effectively reduce the size of government through inflation. However, if we choose inflation your dollars and your investments (at least those valued in dollars) will be proportionately worth less too. Whether we like it or not, our individual wealth is intricately tied to the solvency of our federal government.

If you think of the nation like a group home where we all have a room, would you rather have it shabby with holes in the roof and termites eating at the foundation? Or would you rather it well maintained? For most of us, we would demand the latter. It would be miserable to live in a house that was largely a wreck where the paint is peeling and cockroaches skitter across the floor. We wouldn’t put up with it. Neither should we tolerate a country that is a shabby representation of its former glory.

For myself I would rather have my taxes raised. Granted, I will have less money to spend on other things, but at least some of that money will go to things that matter to me, like making sure when I need health care I can get it, or when I retire there will be enough non-inflated money in the till to pay my Social Security benefits.

I just wish we could have an honest conversation about taxes. I wish the American people would get out of its collective cognitive dissonance. We cannot have it both ways any longer. We must either raise taxes because we agree that civilization in our modern world costs more money, or we must reduce the size of government while understanding that by doing so we are really doing the equivalent of chopping off one of our limbs.

It’s time to stop whining and pay for the government we have. We need a president brave enough to tell us the truth. President Obama, I am looking at you. This is what leadership is really about.


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