Center for Limited Government Newsletter – June 9, 2011

1.Ensuring Government Solvency

By Edward N. Robinson

There is a surefire way for our federal elected leaders to save the nation’s fiscal stability without committing political suicide. This issue is crucial not only for the federal government, but also for Utah, because the state will likely suffer the consequences if the federal government fails to get its fiscal house in order – and also because our state leaders ought to take the same approach to big, tough issues.

Our federal leaders should say to the public that they have come to realize a harsh truth: that Medicare and Social Security were poorly designed in the first place, and have been irresponsibly run by Washington. Both programs have over-promised benefits and underfunded costs, while some of our leaders have done their best to duck the consequences of this reality. If we want any form of these programs to be around for our children and grandchildren, we need to make drastic changes, since the programs are unaffordable as currently structured, and leaving them alone would bankrupt the country in many senses of the word.

In their reflections, these leaders would realize that the important aspect of both programs is what they do for those citizens who are too poor to take adequate care of their health care and retirement needs on their own. While it would be a violation of fair play and political promises to reduce or eliminate benefits for self-sufficient citizens, it would be an additional violation – of decency – to have these programs fail to provide some reasonable level of benefits to the needy.

They would therefore ask Congress to enact an older eligibility age and means-testing for both programs, with benefits phasing out as income goes to a cap of two times the poverty level in today’s dollars, with that cap number being indexed to inflation in consumer prices. They would further ask that the government get out of the business of running Medicare and Social Security, with all of their political temptations to mismanage finances. Instead, the government would give eligible seniors a set amount of money, indexed to consumer price inflation, with which they could buy health insurance that provides a reasonable minimum level of coverage. The government would also give eligible citizens a set amount of money, indexed to consumer price inflation, with which they could buy retirement annuities from authorized issuers that would provide price inflation-indexed levels of lifetime retirement payments.

They would understand that this new approach is unfair to those in their 20s, 30s, and 40s, who have already paid into Social Security and Medicare, but it’s now time to face up to the reality that the people have been promised things that can’t be delivered on any reasonable fiscal basis, and they would have time to adjust to this new reality, and to plan for their own retirement needs. They also would suggest that Congress refund to such people some portion of what they have already paid into each system, so that they could get a head start on purchasing retirement health insurance and annuities.

Those Americans over 50 years old but under 70 years old would have less time to adjust and therefore need to be treated differently from younger people. For them, the eligibility age wouldn’t change, and the means-testing income cap would be phased up to a much higher level for those people in their early 60s. This approach would protect the vulnerable almost-retirees, while still eliminating benefits for those who could comfortably cope without them.

The Social Security and Medicare payroll taxes would be adjusted downward to reflect the lower funding requirements of the programs going forward, and all monies received from the payroll taxes would be put into actual trust funds for the specified purpose, not into the general government coffers where they could be spent on other things, as has been the case with Social Security.

If our leaders give this speech, 60 percent of the population would understand it and would reluctantly accept the harsh medicine prescribed, especially since it will lead to declining national debt levels over time. The populace would adapt to the new reality, the U.S. currency would strengthen and remain the world’s reserve currency, and world investors would be happy to buy U.S. debt while we still needed to issue it – which wouldn’t be for long!

Will our federal and state leaders be willing to tackle important, tough, and (often) controversial issues in such an honest, forthright and politically courageous way? Utahns’ future depends upon the answer.

The author, Edward N. Robinson, is director of Sutherland’s Center for Limited Government. He has been a financial adviser to corporations, a senior executive, and a management consultant. Prior to retiring in 2006, he operated Robinson Partners, consulting CEOs on corporate strategy and mergers and acquisitions. Before that, he was an executive vice president of Texas Commerce Bank (later Chase Bank of Texas and now JPMorgan Chase), where he ran the investment banking business, and then created and ran The Private Bank; was an executive director at Azurix, an international water utility business, responsible for corporate strategy and M&A; and was a managing director at First Boston (now Credit Suisse), running the firm’s Los Angeles office and the regional M&A practice. Mr. Robinson has a B.A. from the University of Michigan and a J.D. from New York University School of Law.


2.Salt Lake City Golf Courses in the Rough

When a golf course falls on hard times, then what?

If the golf course is privately owned, the owners figure out the answers, or they lose their business. They alone are responsible for covering their financial obligations or finding private investment options to fund improvements.

That’s the nature of the free market.

On the other hand, a government-owned golf course operates without having to pay taxes – a market advantage over its privately operated competitors, which always have to pay taxes. …

To read the rest of this post on the Sutherland Daily blog, click here.


3.Sutherland Forum Tuesday: Water and Nuclear Power

Sutherland Institute will host the second of three nuclear energy forums Tuesday, June 14, at 10:30 a.m. at Sutherland Institute offices.

The purpose of this forum is to help Utahns learn about the water requirements and resources for nuclear power as they relate to public policy. Governor Gary Herbert has recommended that Utah “facilitate dialogue regarding Utah’s potential opportunity for nuclear power development,” and Sutherland is holding these forums in light of that recommendation.

Paul Mero, Sutherland president, will interview three water specialists during the first hour of the forum, which will be streamed live here.