The Washington Post today takes a look at how other nations have regained their AAA credit rating from Standard & Poors after being downgraded. One of the leading case studies was Canada’s mid-90s turnaround after being downgraded to AA+.
As the Post notes:
The country passed a landmark budget in 1995. The plan tilted heavily towards cutting expenditures but also included some new revenue (the ratio was about $7 in cuts for every $1 of revenue). Canada cut the civil service by about 25 percent and overhauled its pension program. [emphasis added] The plan worked. Canada is now on much more financially-sound footing; S&P restored its AAA rating in 2002. The turnaround is now referred to, in some economic literature, as “The Maple Leaf Miracle.”
Canada’s predicament back then is similar to the United States’ present situation, the Post said. Which is another sign that no matter what, this deficit reduction is going to sting for federal employees.
Tags: deficit reduction
August 13th, 2011 at 11:29 am
Unlike Canada and most other countries, Federal employee compensation and benefits make up a relatively insignificant portion of the budget. Any reductions in this area would be purely symbolic. You can eliminate all Federal employees, including the military, and the US would still run a deficit and the debt would continue to grow. Entitlements make up the lions share of the budget. While Defense makes up a significant portion, most of defense spending goes to contractors and businesses from the private sector.
August 14th, 2011 at 6:16 am
You make several good points; but I doubt your main premise about eliminating all government employment and still running a deficit.
You have repeated an urban myth: that “Entitlements make up the lions share of the budget.”
Social Security and Medicare are funded via “Trust Funds.” That is, they take in money, lend it to the general revenues, then are due payment upon maturity of those bonds. The military (which includes the “industrial” contracted part of the complex), consumes the most…but it is not “self-financing.” If you include the aftermath of military activity [wars, etc.], then all of the Veterans Administration expenses belong in that area. So to consider veterans’ benefits as an entitlement actually skews the picture. They are not “self-financing” via a “trust fund” accounting.
Almost all agree that we owe our service men and women, but our tendency to involve our military in multiple and simultaneous open-ended conflicts is truly a formula for disaster, economically and otherwise.
August 15th, 2011 at 12:25 pm
I want someone to define – ‘entitlement’. Everyone throws this word around .. but I have yet to hear it defined. Social Security, Medicare/Medicaid … sure this could be considered an ‘entitlement’ but of course we are entitled to this…they take money out of our checks for 40+ years … absolutely we have right to expect to get something in return. STOP putting this money in the general fund .. that is NOT what it is for. In fact. Just give me a lump sum payment at the age of 62 for every dime plus an annual rate of return of 4% and then pay me nothing more for the rest of my life, I will work out investing that money for my ‘retirement’.
August 15th, 2011 at 6:58 pm
I agree 100% with Chris. Having also worked and paid into those ‘taxes’ for that amount of time I am tired of people talking about social security, etc. as though it’s a gift. Perhaps if it were better managed to ensure it goes to only those who legally deserve it there would not be as much of a problem. Why should we who have piad into it all these years pay for the mistakes of others who are not doing the jobs they are being paid to do. I concur, pay me what I’ve paid into it, plus interest, and I’ll be happy to take the lump sum rather than constantly worrying what others are going to decide to do with my money.
August 15th, 2011 at 10:14 pm
Take a look at the numbers on OMB’s website. The total FY11 cost for all Federal employees, including military, pension liabilities, health care, and other benefits is less than $500 billion. The FY11 deficit is more than $1.5 trillion. Just do the math. FY11 Defense spending, excluding personnel costs, is around $600 billion. THerefore, you can eliminate all Federal Employees and all defense spending and still run a deficit.
It’s no myth that entitlement “trust funds” are grossly underfunded going forward. The difference is coming at the expense of all other government programs. Entitlements include much more than Social Security and Medicare. You also have Medicaid, Welfare, Food Stamps, and Federal Uemployment Insurance to name a few.
September 2nd, 2011 at 11:13 am
Chris said: “I want someone to define – ‘entitlement’. Everyone throws this word around .. but I have yet to hear it defined. Social Security, Medicare/Medicaid … sure this could be considered an ‘entitlement’ but of course we are entitled to this…they take money out of our checks for 40+ years …”
Correction Chris – Medicare/Medicaid do NOT go together in this context. Yes, Social Security and Medicare are programs that working people pay into for many years through payroll taxes. Medicaid, on the other hand, is a welfare program that provides medical payments for the poor and needy – it does not have a ‘trust fund’ like social security and medicare, it comes directly from state and federal budgets just like cash assistance, food stamps and other welfare programs. The state share will greatly increase when the feds end their temporarily increased contribution. Balancing state budgets in the future will be harder as the fed share decreases and the number of people eligible increases.