Government Spending

Government Spending in the United States

Entitlements Control

Everyone agrees that government spending on medical care and social security has been on a trajectory so that it could well become a major drag on the United States’ economy. The Affordable Care Act (Obama Care) was supposed to slow down entitlement growth, but it is far from clear at this point how it will accomplish this since spending on Medicaid will expand significantly. I concentrate my discussion of entitlements on spending on the elderly, and propose ways to reduce this spending without any significant additional rationing of care.

Estimates of future spending on Medicare, the main government program for medical spending on persons over 65, indicate that it will rise by 2035 from its present level of about 3% of GDP to almost 6%. This is a ballpark estimate, and it makes assumptions about the growth over time in the number of persons of different ages who will be over 65, medical spending at different ages for those over 65, and the rate of growth of GDP over this time period. The growth in the number of persons over age 65 is the only one of these quantities that can be forecast reasonably accurately.

Despite this uncertainty about what actual spending will be, I have a couple of suggestions to slowdown the growth of Medicare spending. The first one is the easiest in principle to implement; namely to raise the age of eligibility for Medicare (and for social security as well) to age 70. Social security was introduced in the 1930s when life expectancy at age 65 was more than seven years below what it is now. Moreover, the quality of life after age 65 was also much lower at that time since men and women were generally already “old” at age 65. Although Medicare was not introduced until the late 1960s, both the quality and quantity of life have also increased rapidly since then- for example, life expectancy at age 65 has risen by five years.

The more numerous and healthier men and women currently who reach age 65 should be encouraged to continue working for at least several more years- probably to age 70- instead of being encouraged to retire to collect social security benefits and Medicare payments. Those between ages 65-70 would remain in employer’s health insurance plans or buy individual insurance. In either case, they would have greater incentive to economize on their health spending.

Exceptions to the 70 eligibility age would be made for men and women who are not healthy enough to continue working after 65. At present, individuals can stop working and collect disability insurance if they can “prove” they have work-related disabilities. Workers between 65 and 70 could be folded into this disability program, and a corresponding one for Medicare eligibility, with suitable modifications to speed up the disability litigation process, and to reduce the complexity of the decisions on whether someone qualifies for disability payments.

The other main reform to Medicare is to put a larger share of medical payments onto individuals who have sufficient resources. A simple approach would be to introduce vouchers for Medicare spending, whereby lower income and wealth individuals would receive full vouchers to cover their Medicare expenses. Families with higher incomes and wealth would receive partial vouchers, with the voucher rate falling as incomes and wealth became higher. Families with partial vouchers presumably would generally purchase private health insurance to fill in gaps in their Medicare coverage.

Many of those purchasing this private “supplementary” health insurance would take sizable deductions and significant co-pays to reduce the size of their insurance premiums. These deductions and co-pays would increase the incentives of the elderly to economize on medical spending since marginal health spending will come partially or wholly out of their own pockets.

Author: Becker, defunct

Executive Order 13589

Executive Order in relation with Promoting Efficient Spending (November 09, 2011):

“By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to further promote efficient spending in the Federal Government, it is hereby ordered as follows:

Section 1. Policy. My Administration is committed to cutting waste in Federal Government spending and identifying opportunities to promote efficient and effective spending. The Federal Government performs critical functions that support the basic protections that Americans have counted on for decades. As they serve taxpayers, executive departments and agencies (agencies) also must act in a fiscally responsible manner, including by minimizing their costs, in order to perform these mission critical functions in the most efficient, cost effective way. As such, I have pursued an aggressive agenda for reducing administrative costs since taking office and, most recently, within my Fiscal Year 2012 Budget. Building on this effort, I direct agency heads to take even more aggressive steps to ensure the Government is a good steward of taxpayer money.

Sec. 2. Agency Reduction Targets. Each agency shall establish a plan for reducing the combined costs associated with the activities covered by sections 3 through 7 of this order, as well as activities included in the Administrative Efficiency Initiative in the Fiscal Year 2012 Budget, by not less than 20 percent below Fiscal Year 2010 levels, in Fiscal Year 2013. Agency plans for meeting this target shall be submitted to the Office of Management and Budget (OMB) within 45 days of the date of this order. The OMB shall monitor implementation of these plans consistent with Executive Order 13576 of June 13, 2011 (Delivering an Efficient, Effective, and Accountable Government).

Sec. 3. Travel. (a) Agency travel is important to the effective functioning of Government and certain activities can be performed only by traveling to a different location. However, to ensure efficient travel spending, agencies are encouraged to devise strategic alternatives to Government travel, including local or technological alternatives, such as teleconferencing and video conferencing. Agencies should make all appropriate efforts to conduct business and host or sponsor conferences in space controlled by the Federal Government, wherever practicable and cost effective. Lastly, each agency should review its policies associated with domestic civilian permanent change of duty station travel (relocations), including eligibility rules, to identify ways to reduce costs and ensure appropriate controls are in place.

(b) Each agency, agency component, and office of inspector general should designate a senior level official to be responsible for developing and implementing policies and controls to ensure efficient spending on travel and conference related activities, consistent with subsection (a) of this section.

Sec. 4. Employee Information Technology Devices. Agencies should assess current device inventories and usage, and establish controls, to ensure that they are not paying for unused or underutilized information technology (IT) equipment, installed software, or services. Each agency should take steps to limit the number of IT devices (e.g., mobile phones, smartphones, desktop and laptop computers, and tablet personal computers) issued to employees, consistent with the Telework Enhancement Act of 2010 (Public Law 111 292), operational requirements (including continuity of operations), and initiatives designed to create efficiency through the effective implementation of technology. To promote further efficiencies in IT, agencies should consider the implementation of appropriate agency-wide IT solutions that consolidate activities such as desktop services, email, and collaboration tools.

Sec. 5. Printing. Agencies are encouraged to limit the publication and printing of hard copy documents and to presume that information should be provided in an electronic form, whenever practicable, permitted by law, and consistent with applicable records retention requirements. Agencies should consider using acquisition vehicles developed by the OMB’s Federal Strategic Sourcing Initiative to acquire printing and copying devices and services.

Sec. 6. Executive Fleet Efficiencies. The President’s Memorandum of May 24, 2011 (Federal Fleet Performance) directed agencies to improve the performance of the Federal fleet of motor vehicles by increasing the use of vehicle technologies, optimizing fleet size, and improving agency fleet management. Building upon this effort, agencies should limit executive transportation.

Sec. 7. Extraneous Promotional Items. Agencies should limit the purchase of promotional items (e.g., plaques, clothing, and commemorative items), in particular where they are not cost-effective.”

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11 responses to “Government Spending”

  1. International Avatar
    International

    Jim Kirby

    I agree that something like this has to be done, but note that the policy is extremely racist. When SS was instituted and until recently, Black men in Amerika had a life expectancy of below 65, so that they could toil lifelong, earning low wages, denied visits to national parks and forests, and then die at 65, leaving their contributions to the lifelong non-contributing or indolent spouses of White men. Black women, to a lesser extent, suffer the same disadvantage, especially when you consider that both Black men and women are less likely to be married and as singles paying even more to support the indolent White spouse.

    It is thus beyond ironic that now as the Black man has attained a life expectancy of around 70, we should raise the retirement age to 70!

  2. International Avatar
    International

    Bruce

    Many are finding the new healthcare more expensive and harder to implement then first thought. When it comes to healthcare people wonder what we are facing in both care and cost, what I see as the crux of the issue is who will be paying these bills. Giving people an incentive to be responsible is a good starting point.

    Americans spend more on healthcare then people in other developed countries, but with very poor results. When all is said and done the issue is how can America cut healthcare cost and get more and better coverage for the money spent.

  3. International Avatar
    International

    Terry Bennett

    As a group, blacks live shorter lives on average than whites, but the best performers of both races are equal, living slightly past 100. This proves that the disparity is not genetic, but cultural. The black numbers are driven down by gang warfare, poor diet (which may be partly due to lack of food money, along with uninformed choices), and less diligence toward health care (again, partly due to lack of money and partly due to lack of information and/or will). I invite citizens of color to be a thorn in the side of the WASP establishment, by behaving differently and thus living longer.

  4. International Avatar
    International

    Jack

    Vouchers, subsidies and MORE patch work to make up for incomes getting so far out of line? Perhaps……… that is the way to redistribute a pittance of the wealth generated by more than a doubling of per employee productivity but it’s hardly the entree.

  5. International Avatar
    International

    Several important considerations remain about your proposal of a maximum income needed in order to qualify for future benefits: 1) if a person’s earnings exceed your threshold only one working year, are they ineligible to receive any ‘entitlements’ in their retirement? 2) are people who’ve been paying into SS and have been budgeting that they would be collecting a certain amount of retirement income from SS, going to have their safety-net suddenly removed? What if they are close to retirement? At what age would you draw the line of unfairness?

  6. International Avatar
    International

    Terry Bennett

    The primary problem we face is cultural. We have positioned the government as an enabler. Social Security and Medicare are set up as contracts between the government and individuals. You pay into the plan, and you get a return – in fact a ridiculously generous return out of all proportion to your contribution. These programs should have been acknowledged from the start as taxes to fund welfare, with means tested payouts, but the socialists whose initials are so well known to us refused to degrade the self-esteem of their constituents in this way, preferring to prop up this national illusion that nobody really falls short and everyone is “entitled”.

    A new client intimated to me this week that she had nothing in her name – no car, no house, no bank account – even though she was obviously comfortable. When I asked if perhaps she might be concerned with avoiding creditors, she bristled at the perceived aspersion. Eventually she volunteered that she wanted to be sure Medicaid didn’t rob her of her wealth at the end of her life. I’m sure she wouldn’t dream of buying a product or service and not paying for it, but she doesn’t see her strategy as dishonest in the least. It’s what the government has taught us to do.

    There is some basic arithmetic at work here. If you are going to consume some number of dollars of goods and services over your lifetime, then you ought to figure on producing at least that much (plus a little more to cover your charity toward those who fall a bit short, charitably collected by our IRS). That’s why we have even money in the first place: it’s a means of accountability. Under communism, there’s no need for money – everybody is entitled to take what they need, whether their production warrants it or not. (Good luck with that.)

    If you’re 90 and you go in a nursing home and you’ve got $500k saved up, then you can quite well afford to pay your own way and if your kids want to preserve their inheritance they can take care of you themselves. It used to be a point of pride that we paid our bills. In a lyric from about 100 years ago, the St. James Infirmary Blues, a dying man requests, “Put a twenty-dollar gold piece on my watch chain, so my friends will know I died standing pat.” Nowadays, people think why should I rob my own children when I can rob everybody’s children? We need first to re-establish the opinion that each of us should pay our way, and then to expose this ridiculous notion that we ARE paying our way.

  7. International Avatar
    International

    Another possibility is to raise taxes. I’m not sure why Posner seems to have ruled this out. It is certainly not harder, politically, than altering entitlement programs.

    Some may raise concerns that increased taxes would significantly distort the economy, but I doubt that would be true. Social Security is a transfer payment, so it should make little overall difference to the economy whether the budget is balanced by decreasing the consumption of workers (i.e. raising taxes) or decreasing the consumption of retirees (i.e. cutting benefits).

    Likewise, shifting health care expenses to the “comfortable” elderly from taxpayers is unlikely to change their pattern of health care consumption – and if it did, then the decision would warrant even more scrutiny.

  8. International Avatar
    International

    Thomas Rekdal

    Our problem is primarily cultural. (I would prefer to call it moral, but that is a minor quibble.) Something fundamental shifted in the 1930s, not merely here but in most of the democratic world. We no longer hold public debt or individual expectations of public support in the same disdain.

    I am inclined to think that the change is irreversible. We can all think of measures that might stave off disaster–Judge Posner has suggested them from time to time, means-testing being the most obvious–but none of them are politically feasible.

    The most likely outcome is some sort of inter-generational warfare. How long can people under 40 remain content with a working life dedicated to the support of old people? I have no idea.

  9. International Avatar
    International

    Neil

    ough problem, balancing the books while maintaining the Social Contract. All Societies must and shall be judged by their Social Utility, which are the goods and services that they provide. In this case, care for the Indigent, Infirm and the Elderly. Perhaps the solution is to return to the requirements of the recent past among N.A. Indian Tribes that required the elderly and infirm to disappear into the Widerness to die friendless and alone, lest they become a burden on the Society. Or in Sparta where the infirm were exposed at birth by the “Health Committee” – lest they grow and develop into burdens on the State.

    Problems solved, but I doubt that these are solutions to “balancing the books” we would be willing to accept. And so… and don’t tell me that “Contract is Dead”…

  10. International Avatar
    International

    Bruce

    I predict a third proposal will slowly be looked at and considered. Most people would prefer to live a long life, but not too long. There is nothing wrong with a dignified death after a long life. The mores of America are rapidly changing according to those who only a decade ago thought that gay marriage and gays in the military would never become accepted. Sadly ideas like euthanasia and even discrete breastfeeding in public still drives many Americans crazy. With people living longer and technologies ability to extend a persons life well beyond where they feel it has any “real quality” the issue of euthanasia will not go away.

  11. International Avatar
    International

    Jack

    One possibility is that of the new attention to rising H/C costs will result in market or regulatory driven efficiencies that constrain the predicted 3% of GDP increase.

    On the other hand (economists must have at least two) suppose Medicare and H/C does take a higher percentage of GDP. H/C seems unavoidably a labor intensive industry ——- so! more jobs migrate to the H/C sector. When H/C was a small percentage of GDP, farming, auto and other mfg took a much larger percentage of GDP.

    Today’s mfg, agriculture and service sectors have become so efficient (with considerable help from other nations) that we seem to have a structural unemployment problem. (How long can “jobless recoveries” last w/o concluding “it’s the new normal?”

    We’ll surely become yet more efficient in all of our sectors but with the labor intensive areas of H/C, teaching, and, of course, lawyering and judging requiring a higher percentage of our labor force.

    Posner’s last paragraph makes sense, but already SS benefits are taxed away for those with high EARNED income. “Funny thing” that we give more breaks to those with un-earned incomes.

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