The National Debt and Medicare Spending

 

I am a candidate in the May 15 Nebraska Republican Primary for U.S. Senate, against the incumbent Deb Fischer because she is totally ignoring our enormous and out-of-control national debt. In fact she has just recently voted twice to make it worse than it already is.
The major driver of our debt is the entitlement programs, Social Security, Medicare and Medicaid.  Social Security is self-funded from the payroll tax and can be shored up long term with some relatively simple adjustments such as raising the income cap on which the payroll tax is levied and/or SLOWLY raising the eligibility age for full benefits.  Medicaid costs can be controlled by block-granting it to the states with a fixed contribution from the federal government.


But Medicare will be much harder to reform because it is the most expensive entitlement program of all.  The above chart shows that a couple with average wages reaching age 65 in 2015 can expect to receive Medicare benefits that exceed what they put in by $357,000.  This subsidy will only increase in the years ahead.
The American Enterprise Institute’s James Capretta has recently described one possible way to get Medicare costs under control.  In outline:

  • Combine hospitalization (Part A), outpatient services (Part B) and drugs (Part D) into a single combined insurance product.
  • Offer community-rated premiums for beneficiaries, meaning that premiums would not depend on age or health status.
  • A small, universal entitlement benefit would be paid to all enrollees set to cover about 20% of today’s benefit and equal to about $2600. The Medicare payroll tax of 2.9% would pay for this universal benefit.
  • Additional financial support would be based on lifetime earnings, with the lowest quartile receiving substantial additional support which would be phased out for middle- and upper-middle class retirees.
  • Retirees would purchase private insurance plans which could be in the form of high-deductible catastrophic insurance combined with health savings accounts.

Conclusion.  “The reform of Medicare outlined above is a plan to substitute higher premiums from the middle and upper classes for the large general-fund subsidies taxpayers now provide to Medicare to finance the majority of Part B and Part D costs.  The end goal is a self-financing Medicare program.”

8 thoughts on “The National Debt and Medicare Spending

  1. What part of “NOT ENTITLEMENTS” do you dorks not understand??? Myself and millions of others put this money in an account which was robbed by a den of thieves!! PUT IT BACK!!! NOW!!!

  2. As soon as you put the words ‘entitlement’ and ‘social security’ together you lose my support! I have worked since I was 14! That means I have paid into MY social security for 48 years by the time I could even consider collecting on it! That is 48 years of money, I worked for, being taken out of my pay check whether I wanted it taken or not! 48 years of putting money I worked for in the hands of my government who had sworn to save it and care for it for me so I could have an income upon retirement. It was not given to my government to be used for their own purposes. It was not the governments money to fund their over spending! Medicare for those who receive social security payments is not FREE! They pay for it and it is taken directly from their social security allotment before they receive it. It is incomplete health coverage and requires additional coverage add ons, paid for out of the pockets of the social security recipients! Even then many of our seniors often have to chose between medicine or food! Social security payments are not a tax deduction on our yearly tax filings and then they are taxed again when you start to receive them! People receiving social security upon retirement are not ‘free loaders;! They are people who worked or the spouses of people who worked, their entire lives and were forced, by our government, to make payments from every single pay check to a government program that they would see returned to them in their later years! Approximately 2.5 hours of wages for every 40 hours worked is taken from every pay check from every working American. The government should not have touched any of that money for anything other than social security payments! To do so was a blatant, out right Theft! Basically, OUR government decided they couldn’t live on the budget available to them so they used their ‘power’ to access the retirement savings accounts of millions upon millions of Americans! They took money that was not theirs to take with out the permission or consent of the account holders! That is THEFT! So don’t tell me that MY social security is some type of Government Handout (Entitlement) Program! And DO NOT even consider for one second that you would get my vote or support in any way when you try to tel me that!
    4

    • You will get back everything you paid into both SS and Medicare and far more besides. The problem is that SS and Medicare are now underfunded and so need to be revamped so that they will not go bankrupt and will be available for future generations as well as meeting our own needs.

  3. Hello Jack. While I appreciate your dogged devotion to an issue that you are passionate about, some more recent developments in the field of economics suggests that you may be looking for solutions to a problem that’s not a problem anymore.

    Our understanding of the threat posed by national debt was almost entirely formed in and before the Bretton-Woods era of fixed exchange rates. What economists have increasingly come to realize in the last 20 years is that national debt works quite differently for floating exchange rate currencies, like we have now. Let me explain.

    While we often think of the government budget as being similar to a household’s budget, this is clearly not the case, because governments issue the currency that they spend and borrow in, while households do not. However, this is not necessarily an automatic get-out-of-jail-free-card. In a fixed exchange rate system, such as the gold standard, the government promises that it will be able to keep the price of the peg, in this case gold, fixed. To be able to do that requires foreign reserves, in this case gold. If the exchange rate started to rise above the target, the government would issues dollars and use them to buy foreign reserves, lowering the exchange rate back down; if the exchange rate falls below the target, the government uses its foreign reserves to buy back its own currency, raising the exchange rate back up.

    Being able to do this requires a stockpile of foreign currency, or else the government will be unable to honor the exchange rate commitment. The government therefore has to defend its supply of foreign reserves (gold). Now, governments can and do simply spend money into existence to accomplish their spending, and receive some of it back in taxes to remove it from circulation. But what they can’t do in a fixed exchange rate is leave excess money in private hands. Why not? Because if people started to accumulate savings in the form of currency, people might take that currency to the government and demand it be exchanged into gold. Bad news for the government.

    So what the government does instead is it sells bonds; it “borrows” the currency back from the private sector. While currency might be convertible into gold or foreign reserves on demand, the bonds, Treasury Securities, are not. Furthermore, the government can offer people an interest rate on the bonds, to entice them to take this deal. The government effectively pays people to not convert their savings to gold, so that the government won’t run out of gold. That is the purpose of national debt for a government that prints its own money. And you can get serious crises that happen if that debt gets too high, or if people want to convert to gold so desperately that there’s no interest rate high enough to entice them to hold the government’s bonds.

    That was the logic of the system at the time when economists started writing about issues of national debt and deficit. But it’s not the logic of the system anymore. Since we have a floating exchange rate today, the government could care less whether the price of gold goes up or down or sideways. It is not forced to raise interest rates to entice people to hold its bonds, as it has no gold supply that it needs to defend. In the US today, we meet the following 3 conditions for “monetary sovereignty”: 1) we issue our own currency, 2) we have a floating exchange rate, and 3) we have no debt denominated in a foreign currency. Given that, there’s really no crisis possible from national debt. (Though there is the possibility of inflation from unduly large government deficits.)

    This understanding is slowly starting to trickle into consciousness in the economics profession, particularly as repeated predictions of debt crisis in the US, and especially in Japan (whose debt is far larger than the US relative to the size of its economy) have been repeatedly mistaken. The group leading the charge on the new way of thought is called “Modern Monetary Theory,” and its thought leaders include scholars such as Stephanie Kelton, L. Randall Wray, Scott Fullwiler, Matthew Forstater, Bill Mitchell, and Warren Mosler.

    I’d urge you to take a look at this message, and what these people have to say. As a mathematics teacher, I think the detailed accounting logic implicit in the MMT argument will appeal to you. And it would be a shame to see your enormous enthusiasm and energy be wasted simply as a result of theory failing to catch up with reality in the popular consciousness. Please take a look into MMT.

    And feel free to reach out to me if you have any questions. Drop me a line at DeficitOwls@gmail.com. Thank you.

    • I will read up on MMT in order to understand better what is involved. But I am highly dubious that it makes any sense. You say yourself that the possibility of inflation exists because of unduly large deficits. This is exactly what people like myself warn about. When inflation goes up the Fed has to raise interest rates to control it. And then interest payments on the debt will soar. This is when the fiscal crisis will occur. And it won’t be pretty.
      Thanks for your contact information once I learn more about this.

      • Thank you, Jack. I too was quite skeptical at first, but the more digging I did, the more I found that my concerns were addressed satisfactorily. I would hope and encourage you to be skeptical as well, but also to stay open-minded.

        To the point about interest rates and inflation, an interesting point that more and more economists are registering is that using interest rates to control inflation is a strategy that might only be effective at low levels of government debt. At high levels of debt it might not work. The reason is because if you raise the interest rate, then this means the government will pay more interest, and that interest becomes income for people in the private sector. If those people go out and spend that money, then that puts increased inflationary pressure on the economy. So in that situation, raising interest rates could actually cause inflation, rather than slow it.

        The mainstream response to this is to simply tell the government not to let its debt get high, but they don’t really have much to say about what to do about inflation once we’re in a situation with high government debt. The MMT proposition is, maybe we need to re-think the whole idea about trying to use interest rates to control inflation.

        In any case, here are some resources to help you out.

        Here is an excerpt from a book, which is a layman’s introduction to the ideas: https://medium.com/@deficitowls/deadly-innocent-frauds-of-economic-policy-f45206adf05

        Here is a YouTube channel that I run which has a library of short videos answering specific questions: https://www.youtube.com/channel/UCWXGA051bB7uXlvsiGjvOxw/

        Here is some recent press coverage:
        https://www.vice.com/en_us/article/a34n54/modern-monetary-theory-explained

        And, getting more scholarly, here is a series of blog posts which outlined the core of the theory: http://neweconomicperspectives.org/modern-monetary-theory-primer.html

        and here is a collection of published academic papers related to MMT: http://neweconomicperspectives.org/mmt-scholarship

        Hope you find this helpful.

  4. Now you’re making the argument that maybe our debt is so great that raising interest rates won’t be able to slow down inflation when it takes off. You may be right that we’ve crossed a tipping point but I can’t imagine giving up and not even trying to rectify the situation.
    Frankly I would say that MMT is a very dangerous theory that could easily be our undoing if we succumb to it, either consciously or by default.
    After the Nebraska Primary on May 15, when I have more time, I’ll look into MMT at greater length.

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