Revolt!

by Dick Morris

  Ryan Ellis, tax policy director for the Americans for Tax Reform, writes that “according to the Bureau of Economic Analysis, federal pay and benefits per employee is about $120,000 per year. There are 2.4 million civilian federal employees, so that comes out to $288 billion this year.” Ellis estimates that their pay and benefits grow by 7% a year. A freeze would save about $20 billion annually.

  Three-year savings: $60 billion.30

  Americans for Tax Reform’s Grover Norquist identifies several other areas where we can cut back federal spending without inflicting great harm on our society. They include:

  Repeal the Davis-Bacon Act This law requires that federal construction contractors pay the “prevailing wage” to their workers. As Americans for Tax Reform notes, “there is a high frequency of errors” in computing the wage rates, which drives them up by 22%, pushing up federal construction costs by $9 billion a year. We should repeal Davis-Bacon.31

  Sell off government assets The feds own 650 million acres of land, about one-third of the area of the United States! The Bureau of Land Management says that 3.3 million acres are suitable for sale to the private sector. But we haven’t sold them. The Heritage Foundation estimates that we spend $25 billion a year maintaining unused or vacant federal properties. Sell them off!32

  But none of these cuts will mean much if the members of the Congress just put the money back in the budget through earmarks.

  Here’s what earmarks are: when a federal agency gets its budget from Congress, it can spend it pretty much as it wants. But members of Congress often pass special interest amendments to the budget directing that certain sums be spent on certain projects. These projects eat up a large portion of these agencies’ budgets.

  If we are going to freeze discretionary nondefense spending at 2008 levels, we at least have to give the agencies flexibility in how to spend the money. After all, earmarks are, by definition, projects that the agencies themselves felt weren’t worth funding.

  For example, the National Institutes of Health (NIH) get about $25 billion a year, partially to fund cancer research around the nation. We want those funds to go where they will do the most good—to those programs that offer a real insight into licking this horrible disease. The administrator of the Institutes scrutinizes all the research programs and decides which merit funding.

  But then Senator Big Bucks, up for reelection this cycle, comes in and demands that his program at Small Town U get research money, even though it is not doing anything particularly useful to cure the disease. The NIH administrator will say no. Then Senator Big Bucks appeals to Congress and gets an earmark for Small Town U in the budget, and the money the NIH gets is diverted to this useless program.

  Useless? For curing cancer maybe, but not for the senator’s reelection campaign. Because Small Town U hired the ABC lobbying firm to get it an earmark. And the lobbyists at ABC are so grateful to Senator Big Bucks for getting the earmark funded that they contribute tens or hundreds of thousands to his campaign. See our chapter on The Democrats We Must Defeat—Part IV of this book—to find out who gets what in the earmarks-for-donations racket.

  House and Senate Republicans voted to oppose earmarks in the 2012 budget. We need to put a ban on earmarks into the budget and fight for it. We need to kill all the Democratic earmarks, from the Senate, to maintain fiscal discipline.

  The cuts we have suggested are, of course, just rough examples of what can be done. None of these reductions is particularly onerous and none would cause enormous amounts of pain. They can all be done with little risk of political blowback.

  None of these cuts will endanger our welfare or safety. We can roll back discretionary spending to 2008 levels without damaging our country.

  While we are at it, let’s cut unnecessary defense spending as well.

  HOLD DOWN DEFENSE SPENDING

  Under Obama—the liberal—defense spending has actually risen more rapidly than it did under Bush—the conservative.

  As Mattie Corrao, writing in the Daily Caller, notes, “President Bush, who created a new federal department charged with domestic security, waged two new offenses in the Middle East and initiated the War on Terror, kept [defense] spending an entire percentage point lower than the current average.”33

  Even though Obama is fighting a war—and Bush was too—this kind of increase is unjustified. We need a strong defense, but we need a robust economy, too. We cannot allow defense spending to weaken our basic economic power and drive us into unsustainable deficits.

  As we withdraw from Iraq and wind down our surge in Afghanistan, we must accept limits on our defense spending.

  Congress must do its part too to hold down defense increases. Earmarks have long saddled the defense budget with programs, armaments, airplanes, and bases that the Pentagon neither wants nor needs, but that congressmen and senators insist upon to bolster their local economies—and, as noted, their campaign kitties. The defense budget is not an economic stimulant. It is for the safety of our country in an unsafe world. A curb on earmarks will do a lot to hold down defense increases.

  Paul Kennedy warns in his Rise and Fall of the Great Powers of imperial overreach, the tendency of great military powers to spend beyond their means and bankrupt themselves in the process. We need look no further than the old Soviet Union to find the consequences of letting defense spending rise to unsupportable levels.

  Mindful of this excessive spending, Defense Secretary Robert Gates has identified $30 billion of spending cuts he says can be achieved by greater efficiency. But he plans on “redirecting those [savings] to other areas within the DOD [Department of Defense]. The federal government would save around $25 billion if most of those savings were simply applied to deficit reduction instead,”34 according to the Center for American Progress (admittedly, a liberal group).

  And then there are savings we can achieve by curtailing and canceling weapons we just don’t need.

  * * *

  WEAPONS WE DON’T NEED

  V-22 Osprey. Save $2 billion.

  DDG-51 Arleigh Burke class destroyers. Buy one instead of two and save $1.9 billion.

  CBN-80 aircraft carrier. Buy two instead of three and save $1.5 billion.

  Littoral combat ships. Buy two per year instead of four. Save $1.3 billion.

  Marine Corps’ expeditionary fighting vehicle. Defense Secretary Gates wants to cancel this program and save $600 million.

  F-35 Joint Strike Fighter. Cut the procurement in half—to 35 for the Air Force and 10 for the Navy—saving $4.8 billion.

  Virginia class submarines. Maintain the current policy of buying one a year rather than increasing it to two as now planned. Save $2.8 billion.

  Total Savings: $14.9 billion35

  * * *

  Defense Department Civilian personnel A 10% cut in Defense Department civilian personnel would save $8 billion a year.36

  Combined, these defense cuts would reduce the Pentagon budget by close to $50 billion.

  BLOCK GRANT MEDICAID

  It is not only discretionary spending that is driving federal deficits ever higher, it is also entitlements. We don’t want to cut Social Security or Medicare. They didn’t cause this deficit and cutting them is not the way to solve it. But we do need to cut the growth of the other entitlement programs like Medicaid. As noted, during Obama’s tenure, welfare programs have increased by 54%.37

  We should limit spending on these entitlements (other than unemployment benefits, Social Security, and Medicare) to an annual increase of about 3%. Such a limit would not cut any program, but would simply limit its future growth. States would get the money in block grants from Washington and could allocate the funds as they see fit.

  Some states might want to cut back on who is eligible for Medicaid. Others might want to limit the services covered, perhaps restricting dental or psychiatric care or reducing the scope of benefits.

  States may also want—and Washington should permit them—to experiment with changes in how Medicaid works.

>   The best option would be a voluntary program in which people could either keep their current coverage or opt for a Health Savings Account (HSA). An HSA would pay people a flat amount every year for their health care (typically about $2,500 per person). They would pay for their premiums and medical costs out of that check and could keep whatever they did not spend at the end of the year, tax free. If their medical expenses exceeded the HSA payment, the government would pick up a rising percentage of the extra cost. Once it passed a certain threshold, say $6,000 in a year, the government would pay the entire tab. The HSA approach gives the health care consumer himself an incentive to hold down spending and help save money.

  An HSA plan could let the states absorb the reductions in the rate of increase of Medicaid without reducing the quality of care.

  Indiana governor—and possible presidential candidate—Mitch Daniels implemented just such a policy for state workers. Seventy percent of them chose to sign up. The state gives them $2,750 for health care each year, but 94% of them don’t use it all and keep what they do not use. So far, the unused amount comes to about $2,000 per employee. The program has saved the state $20 million or 11% of its usual employee health care budget.38

  Governor Daniels notes, “In 2009…state workers with the HSA visited emergency rooms and physicians 67% less frequently than co-workers with traditional health care. They were much more likely to use generic drugs than those enrolled in the conventional plan, resulting in an average lower cost per prescription of $18. They were admitted to hospitals less than half as frequently as their colleagues.”39

  Obama’s health care program provides for a massive expansion of Medicaid over the next decade. His bill requires that states expand their programs to cover people with incomes of up to one-third above the poverty level (133% of poverty). In most parts of the country, this mandate requires free health care for all earning up to about $30,000 a year.

  Some states have already reached or exceeded that level. New York, for example, covers up to 150% of the poverty level for adults and Massachusetts tops out at 133%. California covers up to only 106%, but other states are very low. Florida covers up to 53% and Arkansas, Mississippi, and Texas are even lower. All these states will be required to raise their Medicaid spending to at least the 133% mandated in Obama’s law.40

  For the first year (the law takes effect in 2014), the Feds will pick up all of the cost. For subsequent years, the states will have to pay 5%.

  The impact of this Medicaid expansion on the federal budget will be crushing. Right now, the Feds pay only between half and two-thirds of a state’s Medicaid bill, depending on how poor the state is. But, under Obama’s bill, the federal share of the cost of the program expansion will zoom to 95%.

  Federal Medicaid spending has already risen from $118 billion in 2000 to $251 billion in 2009. Since Obama took office, it has gone up by $50 billion. Under Obama’s program, it will cost $3.9 trillion between 2011 and 2020. We must repeal the section of ObamaCare that mandates new Medicaid coverage. Together, these ideas will bring the budget deficit down dramatically, likely to less than 3% of our GDP by 2014.

  We keep saying not to cut Medicare and Social Security. But something must be done, in the longer term, to keep these two entitlements secure by reining in the rate of increase in their spending. Here’s how we might do that:

  WARNING: HANDS OFF SOCIAL SECURITY AND MEDICARE!!!

  Conventional wisdom says that we can never cut the deficit without reining in Social Security and Medicare. But Clinton did just that and we can do it again now. Cuts in discretionary spending, curbs on other entitlements, block grants to the states, and the other measures recommended by Americans for Tax Reform can get us a large part of the way there.

  Eventually, we will need to make Social Security viable and keep Medicare costs in line, as much to balance the budget as to protect both systems.

  But we don’t have to do it in 2011 and 2012!

  We can’t afford it politically and we don’t need to do it financially. Social Security and Medicare have risen by 14% and 16% respectively on Obama’s watch. Domestic spending is up by 41% and welfare is up by 54%. That’s where the cuts should fall.

  Having gotten elected over fighting the $500 billion Democratic cut in Medicare, Republicans would get their heads handed to them if they went with cuts of their own in the program.

  And let’s not have a reprise of 2005 when Bush squandered his political capital after his reelection victory by proposing the voluntary diversion of a portion of each person’s Social Security tax payment into alternate investment vehicles. Democrats pounced on the idea, saying that it endangered Social Security by diverting its revenues. They were wrong about that. But the proposal didn’t live long enough to prove it.

  Republicans would be giving away the 2012 election—reelecting Obama—if they chose to slay either of these sacred cows before the next election. And they don’t need to in order to reduce the deficit significantly.

  When Dick briefed President Clinton on the poll he conducted right after the Republican victory in 1994, he asked him if he wanted to hear the four-hour briefing or the one-word summary. The one-word version was: Medicare. When the Republicans cut the rate of growth in the Medicare program, they destroyed their chances of winning the budget fight and of recapturing the White House in 1996. Vice President Gore and others expanded the message to include Medicare, Medicaid, education, and the environment. But the core message was: don’t cut Medicare.

  Three political movements have met their death over proposing cuts in Medicare:

  Clinton lost control of Congress in 1994 largely because of Hillary’s plan for government-run health care.

  Gingrich’s revolution ground to a halt and Clinton was reelected over the Speaker’s plans to cut Medicare.

  Obama’s revolution was stopped dead in its tracks in the elections of 2010 mainly because of his health care changes and their Medicare cuts.

  The Republican resurgence of 2010 must not be the next casualty!

  Why did the Republicans propose to rein in Medicare in 1995–96? It wasn’t to balance the budget. The budget got balanced without making any cuts in either program, just as Clinton said it would. (It actually came into balance more because the economy improved and because we cut capital gains taxes than because of any budget cuts.)

  The Republicans proposed those Medicare cuts primarily because they wanted to shrink the size of government. Good idea. But let’s focus now on what we need to do to bring the deficit down without new taxes. Then, when we win the White House, let’s go on to deal with entitlements.

  But what is the real answer? How do we save Social Security and Medicare?

  According to Wisconsin’s Congressman Paul Ryan—probably the single most brilliant member of the House (not to damn him with faint praise)—it won’t be that hard. After crunching the numbers with the best actuaries available, Ryan, in his famous “Roadmap” for America, concludes that two steps would suffice to assure the long-term solvency of the system.

  HOW TO SAVE SOCIAL SECURITY

  Raise the retirement age by one month every two years. By 2100, it would be 70 years of age. This is hardly an onerous proposal. When Social Security was started, in 1937, life expectancy was 65 for women and 60 for men. A lot of folks would never make it to 65. Now, it’s 76 for men and 81 for women. Most of us will last well past 65. Why should we pay for ever longer retirements as people get healthier and stay younger longer? Raising the retirement age as Ryan proposes would keep pace with increased life expectancy, assuring the same length of retirement, on average, that we guarantee today.

  Adjust cost-of-living increases. There are two ways to compute the annual cost-of-living adjustment for Social Security. You can base the measurement on either price inflation or wage inflation. (Price inflation is usually about 1% more.) Now the Social Security system uses price inflation. Ryan proposes continuing that for anyone on Social Security who makes $75,000 a year or less, but urges
using wage inflation for those making more. And he would phase in this change so it would not affect anyone now on Social Security or now over the age of 55. It makes sense. Why should we use wage inflation to calculate a cost-of-living raise for retired people? They don’t get wages. They pay prices. Use the rise in prices as a yardstick for raising their pensions.

  These two minor changes are enough to guarantee the solvency of the Social Security system for the next 100 years. So don’t sweat it.

  Ryan’s other proposal, which also makes sense, is a variant of the one Bush made that was shot down in 2005. He says that we should permit people now under 55 to pay part of their Social Security taxes into a separate fund, which they could invest in funds approved by the government that might bring a higher return. Their downside would be protected in that they would get back their tax payments in pensions even if those went up in smoke in the stock market.

  His idea is a good one. But if we propose any of these changes now, before the 2012 election, the Democrats will accuse us of cutting or privatizing Social Security. We cannot give them that club to beat our candidates over the head with!

  Saving Medicare may be a bit harder. The key is to replace the current system with a health savings account approach, as Governor Daniels has done for public employees in Indiana. Just give the elderly a flat amount at the start of the year and let them keep whatever they don’t spend. As noted above, if their medical costs exceeded that flat amount, the government would pay a progressively larger share. But this also gives the elderly a reason to cut back on their use of medical facilities.