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By Staff | Aug 5, 2011

The AARP is airing ads with oldsters expressing indignation over proposed cuts by Congress to Medicare, Medicaid payments to hospitals with a tag line directed at elected officials that says, “What were you thinking?”

What they were thinking is that entitlements are going to bankrupt the country, so that in order to save the long term integrity of entitlement programs, financial reform is needed now.

What they were thinking is that the country is on the road to perdition and that everyone, even AARP members, are going to have to contribute to a solution to avoid worse outcomes. The AARP ads insult everyone’s intelligence and demean the credibility of the organization.

The question could be asked, what is the AARP thinking? Austerity must be shared or it won’t work. Hospitals are highly profitable and have not been given the financial incentive to reduce costs or margins.

The ethanol industry offered to transition away from ethanol subsidies and I don’t think there will be any fight from agriculture over ending most farm subsidies either.

The one thing that we expect to see, however, is that all sectors contribute substantially … so the exercise led by “conservative” Senators to end ethanol subsidies, but sustain oil subsidies absolutely kills the kind of cooperation that is imperative to bringing about successful austerity.

This can not be done by hypocrites. I have just about worn out that word, but no other does justice.

Superficially, the deficit is not that difficult to solve, while politically, it is just about impossible. The ideologues and special interests stop the process.

The New York Times has an interactive feature called, “You Fix the Budget.” It gives you a large number of options that raise revenue and reduce spending and you make choices to close a projected $418 billion 2015 shortfall and $1.345 trillion 2030 deficit. To do this yourself, go to: www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html.

I did the exercise and when I finished, I had a $6 billion surplus in 2015 and a $78 billion surplus in 2030. I eliminated earmarks worth $14 billion. I eliminated farm subsidies, saving $14 billion. I cut the federal workforce 10 percent, saving $15 billion.

I cut aid to states by 5 percent, saving $29 billion in 2015 and $42 billion in 2030. I passed on cutting the military and space spending because I didn’t like the options given.

I think there are savings in defense, but not as crafted in the options. I did reduce the number of troops in Iraq and Afghanistan to 30,000 by 2013, saving $86 billion in 2015 and $169 billion in 2030.

I didn’t make the AARP happy as I capped Medicare growth in 2013, saving $29 billion in 2015 and $562 billion in 2030. Obamacare did absolutely nothing to fix the real health care crisis, which is out of control cost inflation.

He added another entitlement when we can’t afford the ones we have now.

The system would cap Medicare growth at GDP plus 1 percent. The medical industry’s blank check has to end.

I raised the age for Social Security eligibility to 68 saving $13 billion in 2015 and $71 billion in 2030. I reduced SS benefits to those with high incomes, saving $6 billion in 2015 and $54 billion in 2030. I opted for using a more accurate COLA, saving $21 billion in 2015 and $82 billion in 2030.

As to estate taxes, I opted for the Lincoln-Kyle estate tax proposal, adding $12 billion in revenue in 2015 and $20 billion in 2030. Contrary to claims, this wealth has not been taxed. It has been described by estate planners as the “dumb” tax. $5 million per individual is exempted with a 35 percnet rate.

I returned capital gains rates to the Clinton era level of 10 percent for low income households and 20 percent for everyone else.

I opted for the Simpson-Bowles tax reform plan that eliminates loopholes and deductions, but cuts tax rates. This raises $75 billion in 2015 and $175 billion in 2030.

In total, I produced my budget surplus in 2015 and 2030 with a 29 percnet contribution from revenues and 71 percent from a reduction in spending. I think that is a good balance. I contributed ag subsidies and at age 59 contributed via Medicare and Social Security savings. The only cut to the military was to bring the troops home.

Entitlements are where the spending is, so its where the savings must come from.

I passed over the option of ending the Bush tax cuts opting for the Simpson-Bowles tax reform where the base is broadened, so rates actually come down, but revenue increases.

There are a lot of ways to fix the budget. I raised revenue the most benign equitable ways possible and reduced spending over the broadest selection of options possible.

As I said, there are many roads that lead to austerity. The average American really doesn’t have the map to make these choices, so exercises like the NY Times interactive budget puzzle are really helpful as public education.

You hear people talk as if cutting foreign aid, ending ag subsidies and earmarks would make the deficit go away. They only add up to $45 billion in savings against a $1.345 trillion 2030 shortfall.

How about the other $1.3 trillion. What do you plan to do about that? What is the AARP’s plan to balance the budget?

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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