By BILL HAMMOND
The good news for the federal budget: there is finally a conference committee that is looking at the issue. The bad news: it is hard to get Congress to agree on anything these days, let alone the budget.
The big issue is sequestration. Do we, once again, allow huge automatic cuts to take place to control spending?
Sequestration will cause a 2.7 percent reduction in spending beginning in January of next year. Because of the last sequestration, federal spending has actually gone down from year to year for the first time. While that sounds good, these across-the-board cuts without considering the need for individual programs is not a good way to do business.
Democrats aren’t a fan of another sequestration because it makes huge cuts to social programs. Republicans aren’t a fan because of the big cuts to defense spending. Yes, the issue is more complicated, but that is the basic problem.
So what is the alternative to another sequestration? The answer is long-term entitlement reform.
Bank robber Willie Sutton was quoted as answering the question of why he robbed banks by saying, “Because that’s where the money is.” He denied ever actually saying that, but his quote is also the answer of why we need long-term entitlement reform: because that’s where the money is.
Medicare and Social Security are projected to grow by 80 percent over the next 10 years. If a trade could be made to do away with the sequestration and instead pass substantial, long-term entitlement reform, everyone would be better off. I am concerned that Medicare and Social Security won’t be there for my grandchildren, and quite frankly that scares me. We need to fix the financial health of these programs now to ensure their viability for our future generations.
It is not that hard, but it will generate controversy, which makes it hard. For both programs you could simply raise the age of retirement and eligibility to 70. People close to retirement age, down to age 50 or 55, could be grandfathered and everyone else would be under the new rules. When these programs were first started life expectancy was in the 60s. Now it’s in the 80s. My guess is it will be well into the 90s for my grandchildren. People are working well beyond 65 and the current programs don’t match current reality.
There could also be changes in the cost of living calculation adjustments in Social Security using a more modern method that looks at consumer spending based on price changes.
Because of the concern of losing Social Security, many people are now saving for their own retirement. That is a good thing, and we need to encourage and incentivize more retirement savings so that Social Security becomes a safety net and not the primary retirement income for Americans. After all, that is what is was designed to be in the first place.
For Medicare, other than increasing the age of eligibility, we should consider bringing some private competition into the mix. Give people a choice, traditional Medicare or a private full-service plan that is comparable in benefits and coverage. We should allow those private plans the flexibility to innovate and offer a real choice to a one-size-fits-all government-run plan.
We can do all of these things while still protecting the safety net for low income Americans, which is critical. What the Congress must remember is that if we don’t do these things, the safety net for those who need it most won’t exist, because the programs won’t exist.
This trade would be a good deal for the taxpayers and the future of the country. Yes, this is a long shot, but this is also an opportunity to make a trade between a sequestration that could hurt the economy and long term financial well-being that could help all Americans.
It is an opportunity that we should not pass up.
Bill Hammond is president and CEO of the Texas Association of Business.