Two Cheers for the Senate Budget Proposal

My last post has faint praise for the Trump 2020 budget proposal because it makes no effort to control overall federal spending even though it does suggest a few relatively small curtailments in both discretionary and Medicare and Medicaid spending.

Now the Senate Budget Committee has come up with a much better proposal.  It reduces deficits by $538 billion over five years (see first chart) thereby keeping annual deficits under $1 trillion going forward.

Under the Senate proposal the federal debt (i.e. the public part on which interest is paid) would still rise to 83% of GDP in 2024 compared to 78% of GDP today (see second chart).  Under the Trump budget, the debt would be 86% of GDP in 2024.

I emphasize that the Senate Budget proposal is better than the Trump proposal, not that the Senate plan is really adequate.  As the third chart clearly shows, it is mandatory (entitlement) spending which is the driver of our increasingly serious debt situation.  In fact, it is even more specific than this.  Social Security can be fixed with some relatively small tweaks but Medicare and Medicaid need major changes.


The basic problem is that the cost of healthcare in the U.S. is way too high, almost twice as expensive as in all other developed countries.  All three sectors of healthcare are to blame: hospitals, providers (i.e. doctors) and drugs.

Furthermore, it is unlikely that the free market can fix this problem.  Healthcare overall is just too complicated for individual healthcare consumers to understand in sufficient detail to be able to effectively compare prices.  It is likely that strict government controls will be needed.

One specific reform which would help out immensely is to let Medicare negotiate with drug companies over the cost of individual drugs.  Right now this is prohibited by Congress so the law would have to be changed.  Other measures to control the costs of both hospitals and doctors will also be needed.

Summary.  At the present time there is general public awareness that our national debt is out of control but not nearly enough interest by individual members of Congress to seriously address this critical problem.

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