The sequester has now been in place for over a month, and it is already beginning to do damage to our still fragile economy. As we have noted in a previous post, the sequester is a bad idea overall and must be repealed or replaced ASAP. Both its direct effects as well as the fear it has created is hampering what little recovery our economy has experienced, and the worst is yet to come.
President Obama has now unveiled his new budget for 2014, and there is good news and bad news. The good news is that, if approved, the budget would stop the sequester, implement alternative spending cuts, raise taxes on the rich by closing loopholes, increase much-needed infrastructure spending, and still shrink the deficit. The bad news is that, as a concession to Republicans, it would change the inflation indexing formula for Social Security and other programs in a way that would understate inflation, which would hurt the most vulnerable Americans unless other measures are taken specifically to protect them from such benefit cuts. Although Obama says that he will find ways to protect the vulnerable, this change in indexing (the so-called "chained-CPI") would make him the first Democratic president to even consider making any significant cuts to Social Security in the entire program's 78-year history. Unsurprisingly, the budget has angered many Democrats in Congress along with Republicans.
While it is good that Obama is serious about entitlement reform, there are far better ways to do it, which include raising or eliminating the wage cap on FICA taxes, indexing initial benefits to prices rather than wages, limiting benefits for the wealthiest retirees, and very gradually raising the full retirement age from 67 to 70 for future retirees born after 1960. Even better still would be replacing FICA entirely with an alternative funding source, such as the Universal Exchange Tax, along with the other tweaks listed above. As for Medicare and Medicaid, which are in far worse shape than Social Security, the best way (if not the only way) to effectively reform them would be to create a single-payer healthcare system similar to Canada and most of the rest of the civilized world. But as long as we keep electing spineless Democrats and greedy Republicans, it is unlikely that any of these better alternatives will come to pass in the foreseeable future, and we will be left with a false choice between screwing "merely" one or two generations versus screwing several future generations.
Although Obama's budget clearly leaves much to be desired, it is still far better than the sequester, and it may be the only way for our incompetent Congress to be willing and able to stop it before it's too late. The budget's flaws can be (hopefully) solved at some point in the not-too-distant future, while the sequester is already doing real damage right now and must be jettisoned at once.