As the mortgage/financial crisis continues to bubble and talking heads debate the pros and cons of the bailout package (and pack the same package with pork), there's a far larger iceberg (actually three) on the horizon that continue to be ignored: Social Security, Medicare and Medicaid.
These three income-redistribution programs devour ever-growing chunks of the federal budget, yet there is little desire to tackle them. I've read that within 20-30 years (at current rates), these three programs alone will consume the ENTIRE federal budget. My guess is that's a very generous estimate, and the actual timeframe is more like 15-20 years.
Within a few years (possibly by 2013), Social Security is projected to have a negative income. By this, I mean it will pay out more than it takes in. There is no Social Security trust fund – all taxes levied on behalf of Social Security that are not paid out go into the general fund to support whatever flavor-of-the-month the politicians desire. Any "trust fund" is only a box of IOUs. Once Social Security starts having a negative income, those IOUs will come due. At that time, one of three things will happen: benefits will decrease, taxes will increase, or other creative financing will be done to maintain both benefits and tax rates. A decrease in benefits won't happen, as it's political suicide. Likewise, a tax increase is unlikely. That leaves creating financing, kind of like what created the current financial situation. Only this time, it will be a far larger magnitude, as the cooking of the books likely won't be apparent for some time.
As baby boomers retire, the costs to Medicare and Medicaid will also increase. Again, there are three options to deal with it. As with Social Security, the option likely to be taken is creative financing.
When you combine these three programs and consider the probability of creative financing, what we're currently seeing hit the financial markets will be peanuts.
Our elected leaders (Democrats, Republicans and independents) urgently need to address these issues in an intelligent manner. A good first step would be for ALL tax revenue from Social Security taxes to be fenced for Social Security use only. In essence, actually use the money as a trust fund of sorts rather than replacing cash with an IOU. That alone won't solve the problem (associated spending cuts to offset the loss of money to the general fund would also be needed), but it's a start. A gradual phase-out of all three programs would be ideal, perhaps over a period of 30-40 years. The government has no business getting involved in financing any of these programs. Regulation and oversight is the government's rightful place. Let the free market actually run the programs.
Long-term business planning often looks multiple decades into the future, and there are enough smart people in this country to do the same for these three programs to gradually wean the general public from government largesse and take some personal responsibility.
Will any of this happen? I'm somewhat skeptical for one simple reason. The job of a politician is to get re-elected, and this can only be done by focusing on short-term gains. Long-term focus is far more difficult and often entails short-term pain. If the majority of the American population understands this and is willing to "suffer" a little today to bring a brighter tomorrow (and shows this at the ballot box), it has a chance. Otherwise, we'll continue to muddle through and when things blow up, the finger pointing and blame game will resume.
Darin Kallen