• About that discretionary spending

    Whenever my friends and family get riled up about the deficit (and many of them do), they like to rail against things they see in the news. Welfare being spent in strip clubs. Foreign aid. Abstinence programs. NPR. Public television. Ethanol subsidies. The NEA. All of these things fall into the wide swath of initiatives known as non-defense discretionary spending. And, to hear tell from the media, you would think that it’s consuming much of our budget.

    That’s not to say that my friends aren’t often upset by spending on defense, too. Many, from both sides of the aisle, think those costs are hurting us as well.

    From the CBO Director’s Blog yesterday:

    Over the last 40 years, social security and health care spending have consumed about 7.3% of GDP. The rest of the budget, including that which upsets my friends and family above, accounted for 11.4% of GDP. So it made sense to see where we could curb our spending in those areas. But look towards the future. In 2022, ten years from now, all of that other spending – including defense and non-defense discretionary spending – is going to drop to 7.8% of GDP.

    Social security and health care programs, on the other hand, are projected to rise to 12.8% of GDP. That’s what’s going to get us. And the long term problem isn’t social security:

    So what do we do? Today, at least among my friends and family, it seems we are content to discuss small-ball policies that will impact the actual budget in imperceptible ways. Alternatively, we can get address the real issue, which barely warranted a mention in the State of the Union or Republican Response recently: health care spending. To make the budget work, we have three real options. The first is to tax the country at much, much higher rates to be able to pay for what you see above. The second is to cost shift that burden onto individuals and get it off the government’s books. The third is to have a serious discussion on how to actually reduce the cost of care.

    I’d favor the third. But if we aren’t willing as a nation to do that, we’re going to have to do one of the other two.

     

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    • We are going to have to reduce the cost of care by first shifting the smaller costs to the insured.
      By normally not making claims when one actually could, he can actually build up reserves in a separate polic y.
      As these reserves build in this separate, primary policy, the deductible is increased on the traditional plan, every month.
      This savings in premium with a higher deductible is then placed in a retirement plan.
      People see the savings immediately, and how that savings is turned into loing-term investment income.
      Don Levit

      • Do you have a more detailed description of this plan? I am having a little trouble envisioning how it would work in practice. Could either the first or second plan be either public or private?

    • I think people use the small ball issues as an evaluation for policymakers’ seriousness. To your average low-information voter, it seems fair that if someone won’t even commit to cutting the NEA or foreign aid or Ethanol subsidies, why should we trust their judgment about cutting the things that actually matter to us (e.g,, medicare, soc security)? In other words, people like to start trimming the fat (i.e., discretionary spending) before taking the really painful steps and it violates most voters’ sense of justice/fairness that you start with cutting the most important things first and leave untouched the “waste” because there’s not that much money there or its easier for policy makers to focus on one massive cut than hundreds of programs.

      Of course there are flaws with this way of thinking (i.e., the risks of ending up arguing about minor cuts and never doing anything major are significant) but overall, I think its undervalued in today’s DC. After all, if one can’t the minor programs, why should we believe the major cuts will stick?

    • George:
      Thanks for asking. I can give you a few details, but the moderator may think it would be more appropriate to discuss this offline.
      Basically, the first plan would have a contribution that provides a cash value. An additional contribution would be for insurance.
      The person would then have a paid-up policy, with the medical benefits being a multiple of the cash benefits.
      For example, if the multiple is 3, and he has $100 of cash, then his medical benefits are $300.
      The goal is to build up $25,000-$50,000 of medical benefits, which would take 2-4 years.
      Reinsurance and catastrophic insurance would be available to close any gaps he may have with his present policy.
      Having $50,000 of paid-up benefits reduces the premium by 80%.
      Don Levit