Bringing Facts to Bear on Budget Discussion

NEW YORK ( TheStreet) -- Federal deficits are too large, and mounting national debt threatens future generations. Both Democrats and Republicans embrace demagoguery and refuse to address facts and acknowledge lessons of history.

Since 2007, federal spending is up $1 trillion dollars and deficits jumped from $161 billion to $1.2 trillion over five years.

Higher taxes on the wealthy and Obamacare levies will pull down the gap in 2014, but then it will rise again. Health care, social security and slow growth, not low taxes, are the culprits.

Tax rates and rules imposed in January will increase revenue's share of GDP well above its average for the last 40 years.

However, Americans spend 18% of GDP on health care, while the Germans and Dutch, with more government cost-sharing and better care, spend about 12%.

Even with Obamacare, private insurance premiums and out-of-pocket expenses are rocketing, while Medicare and Medicaid have suppressed provider reimbursements to levels where many physicians refuse to take publicly financed patients.

Benchmarked against Germany and Holland, U.S. private health care prices are too high, while government rates for the poor and elderly are too low to cover providers' costs.

Republicans would rely more on markets and competition -- scrapping most Obamacare mandates and giving elderly vouchers to buy private care -- and hoisting the poor onto the states by replacing Medicaid with block grants.

Those would not bring down private health care prices -- cash grants to the elderly and fragmenting Medicaid administration would raise those.

GOP strategies would leave many elderly and poor forgoing care, less healthy and dying too young -- much the new reality for the former middle class and poor in Portugal, Spain and Greece.

The Germans do what Obama, Boehner and others are unwilling to conceive: directly reimbursing most health care costs, regulating most providers' prices, slashing administrative burdens and executive salaries, and eliminating most malpractice suits.

The necessary taxes would be less expensive for U.S. businesses and individuals than the taxes, health insurance premiums and out-of-pocket costs they now bear.

Americans live longer and can work longer, and social security and government pension ages should be raised to 70. No system of social insurance or federal finance can work when folks can live another 20 or 30 years in retirement.

No tax increase can escape these realities -- overtaxation caused nothing but slow growth, misery and decay in southern Europe.

Over-regulation of the private sector does not mitigate, but rather exacerbates risks of financial crisis. The greatest threats come, not from private bank meltdowns and personal bankruptcies, but rather from a loss of confidence in government's ability to promote adequate economic growth and hence raise revenues to finance its legitimate responsibilities.

President Obama inherited a mess -- unemployment peaked at 10% in his first term -- but since his recovery began, economic growth has averaged only 2.1%.

President Reagan inherited a mess, too -- unemployment peaked at 10.8% -- but at the comparable point in his recovery, growth was averaging 5.3%. Partly because of continued strong growth, federal deficits dissolved in the 1990s.

Instead of campaigning that cutting federal spending one half of one percent must force food shortages, outbreaks of E. coli and streets without police, the President would do better to read more about Reagan and less about Lincoln -- he faces a growth crisis not a civil war.

Republicans would do better to acknowledge that just as national defense can't be left to private armies, markets and competition can't solve health care inflation.

Both sides need to be honest with Americans about working longer and accept a radically different role for government if they want to leave the nation to their grandchildren as they inherited it: prosperous, secure and solvent.
Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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