One of the opportunities that sequestration presents is the realization of just how dependent the American public is on federal programs and services.
The long arm of the federal government has reached so far into every nook and cranny of American society that it is difficult to think some of the programs and services may disappear. Taxpayers should seize the opportunity sequestration provides to examine which services are truly essential to the community’s health and safety. Those who benefit from a specific federal program will declare that program essential, and that is why elected officials find it difficult to deal with the idea of cutting federal spending. After all, they delivered on promises made to their constituents and know if their programs are on the chopping block, they might not get re-elected.
The “sky is falling” cries have yet to materialize into real disasters. Having known for a long time that the party could not go on forever, federal agencies already had plans in place to make cuts without disrupting the normal flow of services. It may not be business as usual, but bureaucrats have methodically examined how reductions can be accomplished without an all out collapse of day-to-day operations.
What most taxpayers don’t realize is that sequestration applies only to those expenditures considered discretionary. Many think federal programs, like the defense of the country, are essential. In fact, the bigger chunk of the federal spending pie is considered nondiscretionary, such as Social Security, Medicare and Medicaid payments.
Those programs are hot potatoes since the elderly, disabled and poor are dependent on them. Because Social Security and Medicare are programs for which specific taxes were earmarked, the beneficiaries of those programs believe they are entitled to those payments. As a result, elected officials fear making changes, reducing benefits or raising taxes to offset the drain on those funds. But like the rest of the federal budget, those programs are hemorrhaging, and administrators have sent Congress and the White House red flags about the funds running out of money in the not-so-distant future.
It would be disastrous for elected officials to alter the benefits for those currently receiving or about to receive benefits, but there is no reason why Congress cannot begin to warn future retirees and beneficiaries that the benefits handed out today will not be possible in the future. By making changes that will apply to future beneficiaries, those currently in the workforce can prepare for a Social Security system as it was originally meant to be: a supplement to retirement savings.
One of the possible solutions to the problems facing the system is an increase in the age at which full benefits are available. With advances in medical science, people are living longer and are in better health than when the full-retirement age was set at 65. Congress already moved the full-retirement age to at least 66 for baby boomers who are beginning to retire. Setting the full-retirement age at 70 is not unreasonable.
Another possibility is reducing the cost-of-living increases granted to beneficiaries. While those in the workforce will decry not receiving annual adjustments to their benefits when they retire, that has to be looked at with the alternative of substantially increasing taxes currently being paid. Given the sophistication of those in the workforce today, the need for a paternalistic retirement benefit, like Social Security, may not be necessary at all. While many may decry reducing the benefits of future beneficiaries, the offsetting consideration is leaving more money in worker’s’ paychecks, money that could be placed in one’s own retirement account.
Sequestration presents taxpayers with many opportunities to change the way they think about federal government. It is a change in perception from one of entitlement to one of being empowered to determine one’s own destiny. To a large extent, the gridlock in Washington is caused by the expectation that government will provide for every wish and whim of the taxpayer, wishes that have added up to a government the American people can no longer afford. It is time to truly assess what is essential to the health and welfare of the community.
Lowell L. Kalapa is the president of the Tax Foundation of Hawaii.