Charles Rowley's Blog

“Don’t doubt that Mr. Obama’s real impulse, like that of most Democrats, is to let things ride and then simply, amid a crisis, start slashing benefits for the ‘rich’ while also raising taxes on the ‘rich.’  Unspoken has been a Democratic assumption that an aging electorate, in a crisis, would be willing to tax itself to the hilt to prop up an unreformed or barely reformed Social Security and Medicare.  Even if this assumption were electorally sound, economics won’t oblige in the crisis that’s coming.  The necessary tax hikes would kill any hope of growth.  The economy would continue its free fall without root-and-branch entitlement cuts all the more painful for having been delayed.” Holman W. Jenkins, Jr. ‘Let’s Begin Obama’s Conversation on Entitlements’, The Wall Street Journal, February 26, 2011

Just to identify the tip of the entitlements iceberg, let us glance for a moment at the crisis confronting the real killer, Medicare.  According to a recent study by the left-leaning Urban Institute, an average couple who retired  in 2010 can expect to consume Medicare benefits with a present value of $343,000.  That same average couple will have paid Medicare taxes with a present value of $109,000.

Even that dreadful shortfall is a mirage. For none of the Medicare taxes paid out by that average couple remain in the pocket of the federal government. Exactly like Bernie Madoff, American governments have spent those tax monies living high on the electoral hog. There is not a single penny of all those Medicare taxes left in the government’s empty coffers.

And the same theft can be reported with respect to payroll taxes that were supposed to go into a non-existent Trust Fund. All those monies also have been blown by vote-seeking politicians who care not a tinker’s cuss about the People that they pretend to represent. Barack Obama, a Chicago-machine politician drenched in socialist ideology is precisely the worst ideologue to preside over the entitlement system as it slides into immediate crisis.  Most probably, that is why he was elected into office.

What does this imply in economic reality?  The retirement of the baby boomers is now imminent. The government has not saved the taxes to pay for their retirement. As they retire, for the most part, they have not saved anything near enough to cover their own retirements. So a stark political choice confronts the electorate. Will the younger generations be willing and able to remit taxes sufficient to cover the unfunded commitments to their parents as well as to provide for themselves?  Or will they shrug off unfunded commitments and allow the baby-boomers to eke out their remaining lives in poverty and disease?

Well, the baby boomers have the votes, and the desperate willingness to vote themselves into safety. so that is the way that  vote-seeking politicians most likely will go. And that will be the end of the American dream for the future generations.

To mitigate a crisis that cannot be averted, immediate action is required, at the mimimum to raise the age of accessing social security and medicare to 70 years and rising, to reflect increasing life expectancy, to allow retired individuals to supplement health care spending beyond the limits of Medicare billing, and to tax social security income as regular income.

More than this surely will prove to be necessary. The payroll and medicare taxes syphoned off working Americans should be moved henceforth into personalized accounts, firewalled from the filthy fingers of the U.S. Congress. Those accounts should bear interest at the rates attained by 10-year Treasury Bills, extracted annually from the federal budget. In that way, there will be no prospect of  the federal government ever repeating its fraudulent Ponzi schemes  and ruthlessly stealing the retirement future from its own People.

To introduce such reforms requires political courage and honesty, and a willingness to sacrifice one’s office for the good of the nation. No wonder a cheap Chicago politician like Obama chooses to play golf and basketball, and to vacation in privileged locations.