Monday, January 31, 2011

Myths of the Budget Deficit

This article does a very nice job summarizing the key points we talked about Thursday.

1. Cuts to programs (or taxes increases) today will have a small impact on the long-run budget deficit and will likely do more harm than good in terms of economic growth.
2. Drastic changes need to be made to Medicare and Social Security.
3. Interest rates will increase drastically by 2020.
4. The elderly get more out of the system than they paid in (longer life expectancies and higher health care costs).

Simple solutions, raise the retirement age for both Medicare and Social Security and index it to life expectancy, increase copays for Medicare recipients, and index Social Security to a cost of living index that more accurately reflects the cost of living.

I'll emphasize again the deficit is being played up as a Democrat vs. Republican debate, truth be told they are both failing in their attempts to control the long-run national debt. The reality comes down to the people. Most American's are uninformed over the national debt and don't want to pay the costs associated with cuts in Social Security or Medicare. Right now 20% of our population is over 65 and another 20% is between the ages of 50-65. This suggests that more than 40% of our population will be against these cuts.  This is not a party argument. I'm highly skeptical the Republicans or Democrats want to challenge the entitlement programs.

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