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Dear America: Austerity Is Going to Hurt

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The debt-ceiling deal doesn't go far enough to control the U.S. government's spending problem, according to many.

But it certainly does seem to mean that we've decided we need to be more like the U.K., more like Italy, more like Greece. We need austerity too, the politicians say.

But austerity is going to be rough. Heidi Moore explains:

"I have talked to a lot of people on Wall Street about our economic situation. I’m going to tell you something you don’t want to hear: They say they won’t take this deficit-cutting talk seriously until they see the government cutting programs like Social Security, Medicare and Medicaid.

You can blame Wall Street for wanting to see these cuts, but there’s no point. Wall Street isn’t gunning for your poverty. They just want to see Treasury bonds stay strong. For Treasury bonds to stay strong, the U.S. has to keep its credit rating. For the U.S. to keep its credit rating, the $14 trillion deficit has to be cut by $6 to $8 trillion over the next decade or so.

Let’s think about the math there. $8 trillion American dollars. How are you going to do that? You can end every war and de-fund the Pentagon and you still wouldn’t get there. So we know it’s going to hurt like hell. It’s going to involve programs that have become part of the fabric of our society and things we’ve come to depend on. It’s going to involve education, Social Security, Medicare and Medicaid.

That’s just the math. That’s why austerity sucks—it’s not just belt tightening. It’s not just spending less. It’s the breaking of social contracts. It’s taking away what people thought they were promised.

It’s having money taken out of your paycheck for 40 years and still having to scrape by because time has passed, the government authorized expenditures it couldn’t really afford, and your potential retirement money subsidized that."

That said, it doesn't have to be a social contract massacre.

Especially if we're willing to dramatically scale back on "global leadership," we can keep a lot of our social contract in place while balancing the budget. We figured this all out back in March.

I left Social Security largely intact, because most of the proposals to reform it are forms of redistributive taxation, which aren’t a good idea. The only thing I cut here was $17 billion from the disability program, which is a relatively minor reduction that would only cut into states with the most generous programs for allowing disability benefits.

When we did this experiment in November, the largest savings came from Medicare, the government-provided health care for the elderly. Capping Medicare growth at GDP plus 1 percent would save $29 billion by 2015 and $562 billion by 2030. By raising the age qualification to 70, I’d take off another $104 billion over 20 years. And reducing the tax breaks for employer-provided health care—which would incentivize health-care consumers to put pricing pressure on providers—saves another $157 billion. Tack on malpractice reform and we’ve got another $13 billion in savings.

With those cuts alone, we managed to not only balance the budget—we’ve created a surplus. According to The New York Times, by 2030 I’d have a $30 billion surplus. The additional spending cuts—the ones the Times wouldn’t let us include in foreign wars and foreign aid—would bring the surplus up to around $200 billion.

I’d probably favor both raising some sort of bank tax and converting the mortgage interest deduction into a tax credit. According to the Times, this would give another $157 billion in revenue.

With an additional $357 billion in revenue, we could actually restore almost all the cuts to Medicare.

So, under this budget, we’d have no budget deficit in 2015 and none all the way out to 2030. The main thing we need to cut is wasteful government domestic spending and the unaffordable imperial military spending. Why does everyone act like this government budget stuff is so hard?

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