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Budget cuts met with silence, but damage is coming

The U.S. Capitol Capitol Hill Washingtis seen through maze twigs tree branches Saturday March 2 2013.   (AP Photo/Manuel

The U.S. Capitol on Capitol Hill in Washington, is seen through a maze of twigs and tree branches Saturday, March 2, 2013. (AP Photo/Manuel Balce Ceneta)

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Updated: May 3, 2013 12:15PM



Remember the story of the little boy who cried wolf? After all his made-up stories and loud cries about a wolf chasing the sheep, the villagers stopped believing him. Then one day the wolf appeared — really. And no one came running to help him save his flock. It’s a lesson we teach to young children about the dangers of making up stories, about lying.

The past few weeks in Washington have been a classic case of crying wolf. Surely, the government could absorb a 2.3 percent cut in its ability to spend, without impending disaster. This time around, even the media weren’t so quick to bite at the horror stories. They recognized that the viewers were actually getting bored with all the theatrics.

And when Congress left town early Friday to catch a long weekend, it barely made headlines. The president was left to sign the sequester bill into law in a lonely room, bereft of theatrics. And life has gone on as usual.

Within weeks, there will be another crisis if Congress doesn’t pass a budget, or another continuing resolution to appropriate money for government. As of March 27, there will be threats of a government shutdown. That will be followed in a couple of months by another crisis over the debt ceiling and threats that the government will not be able to pay its bills.

And in each case, there will be dire prophecies of financial Armageddon. Will the media, and the public, grow even more bored?

Cry wolf

Just as in the fable of the little boy who cried wolf, one day the cries of imminent disaster will be serious. In fact, we’re coming closer by the day to the real crisis — and the sad truth is that because of all the previous theatrics, the real threat is being ignored.

Washington won’t have to manufacture a crisis; it will be upon us. And it will come in places that we are ignoring now. It is coming in places that aren’t even under discussion and not a part of the current sequester.

Medicare: Three years ago I gave some financial advice that made many people laugh. I suggested that those approaching retirement should change physicians — and get a younger doc. Around the time ObamaCare was passed, I predicted that the trend of cutting physicians’ reimbursement rates for Medicare would become even more drastic. And that would cause many physicians to limit the number of seniors in their practice. You wouldn’t want your doctor to retire at a time when it would be hard to replace him or her because you’re a senior on Medicare.

Well, that’s already happening. As part of Congress’ failure to act on a number of issues this month, physician Medicare reimbursement rates — already lagging the true cost of care — will be cut by 2 percent. As a result, many docs are no longer taking on new Medicare patients.

Social Security: We’ve cried wolf over this issue for so long that we’re deadened to the reality. Of course, the reality is that Social Security shouldn’t be broke — not after the reforms of the mid-1980s that were designed to build up a surplus in the Social Security Old Age trust fund. But a few years after those reforms went into effect, with substantial increases in Social Security taxes (FICA), that pool of money became too tempting. So the Social Security “trust fund” was consolidated into the federal budget.

Today, our annual trillion-dollar budget deficit actually includes those surpluses that were supposed to keep Social Security solvent for retiring boomers.

Medicaid: The Medicaid program is jointly funded by states and the federal government. And it is about to be expanded greatly under the new health-care law. But while the sequester doesn’t directly impact the growing cost of Medicaid spending by the states, a different crisis is coming. The federal government has promised to bear most of those costs in the first few years of the expanded Medicaid program. And those ambitious plans haven’t been derailed by the sequester.

The real threat

These three largest components of federal spending have been combined under the label of “non-discretionary” — and so they are not even being discussed by a Congress that has so far ignored its responsibility to create a budget.

Plus, there’s a fourth category that’s easily overlooked: interest on the national debt. Right now, with the Fed keeping interest rates abnormally low, America hasn’t had to pay the price for all its borrowing. But there’s no guarantee that the Fed can maintain control of rates. And a market-led rate increase could raise our annual interest bill dramatically.

In 2012, America spent $220 billion on interest on the debt. Since the average maturity of our national debt is about 64 months, within five years, any maturing debt and all new debt will likely demand higher interest rates, causing our annual interest bill to soar. As the deficit grows and adds to our national debt each year, the impact will be exponentially greater.

And Washington is still crying wolf. Yes, we have to figure out what to do about everything from airport security to food safety, from defense budgets to head start. Either we have to become more efficient and effective in our spending, or we will have to do without some government activities.

Is there anyone who doubts that with a heroic effort we could become more efficient in Washington? After all, we did put a man on the moon! Where is the leadership that will deal with the true issues — instead of crying wolf, and numbing us to the real threats?

Because the wolf is coming. And that’s The Savage Truth.



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