Shlaes writes that “The “Forgotten Man” equation is really quite simple. Say a person named Al has an idea for a government program that could make Doug’s life better. He then convinces Betty of the merit of his plan and together they’re able to gather enough support within Congress to pass a law granting Doug an entitlement for college tuition money if he does a year of community service (Barack Obama just signed a $5.7 billion bill this week, which does exactly that). One person not consulted, but whose life will be greatly affected by this decision is Charlie, the loyal taxpayer already providing for himself and his family.  Maybe he already has a child in college or about to enroll or is trying to make payroll for his small business. It will take his federal taxes and likely several others to pay Doug while he is working for the federal government doing community service and then pay for his college tuition. Charlie is “The Forgotten Man.” Multiply that scenario many times over, with the entitlements already in place, and you have the makings of our current budget crisis. 

In last year’s federal budget, entitlements including Social Security, Medicare, Medicaid, Welfare and food stamps, made up over 50% of the $2.98 trillion total, as they have for several years. Medicare and Medicaid, at $682 billion accounted for nearly half of that or 23% of the total federal budget. (See Congressional Budget Office chart). The federal government ran a $455 billion deficit in 2008, and at least $1.75 trillion in 2009. Also of note was that the first wave of Baby Boomers began to retire in 2008; therefore, the entitlement problem will get exponentially worse in the upcoming years. 

Obama’s answer to this budget crisis is proposing brand new entitlement programs such as universal health care and new, vastly expanded education benefits. He’s about 40 years too late to be embarking on another Great Society or New Deal. The nation, with its $11 trillion plus debt and massive world trade deficit rather than surplus, is simply not in the same place financially. As the linked graph indicates, 8% of the total federal budget is currently being used to pay interest on the National Debt.  The budget President Obama has submitted, by his own numbers, will double the Debt. In other words, at least 16% of the total federal budget will be needed to pay the interest, to say nothing of the principal. Assuming interest rates go up, and they will have to in order to entice people to buy the vast number of Treasury notes, it’s entirely conceivable interest on the Debt will outstrip the entire outlay for the Department of Defense, which is currently 21% of the federal budget. Anyone, who’s carried significant balances on credit cards realizes how eventually an unsustainable portion of one’s pay gets gobbled up just trying to maintain the debt. Another likely result of such massive deficit spending will be inflation, which is a tax on peoples’ incomes by other means. The government prints more money to help cover its debt and thus devalues the currency, and everyone pays more for the items they want and need—it’s a tax.

For the good of the nation, Barack Obama better figure out how to become a fiscal conservative soon (if not in name, at least in action), and it’s going to take a lot more than $100 million here and there to address the problem, as he proposed this week. Obama can adopt a reform agenda and still be the hero of the hour. His mission would be to make entitlements manageable, which he has said that he wants to address. The agenda should include in part:

1. Mandatory medical savings accounts (MSAs). Current law already allows for those who are self-employed to create them as long as they’re coupled with catastrophic health insurance: expand them to all employees. They are similar to IRAs, and kept in the private sector (the government therefore is not tempted to appropriate the money as regular tax revenue, as it has done with Social Security and Medicare). Require employers to take a portion of their employees' pre-tax pay to fund the account, to perhaps a $1000 minimum with an upper limit of maybe $10,000 all tax-free. Also require all full time workers to be covered by catastrophic health care insurance with the minimum in their MSAs of enough to cover that deductible. Further require all to receive regular physical exams, based on their age and overall physical condition in order to prevent disease or catch problems early. Assuming an employee is healthy and his MSA is fully funded, none of his pay need go to the account. This system would create quite an incentive to make healthier lifestyle choices. Further such a system would greatly reduce the number of people showing up at the hospital with no money at all to pay for services provided—at a bare minimum they would have their MSA. Another likely effect would be reduced cost medical facilities springing up to serve people whose payment could now be guaranteed, at least in part, by having access to their MSAs. (I heard a version of this recommendation at a Heritage Foundation seminar, which I fleshed out a bit in conversation with others.)