What's happening in Madison, Wisc., has already come to your town, too, although probably in a less extreme way. State and local governments are strapped for dollars. Moreover, they're looking at the budget deficit discussions in Washington with every expectation that the flow of federal money to the hinterlands will be squeezed as well. Welcome to the era of shrinking government.
Countless senior organizations and social service nonprofits are howling over possible cuts, and the volume knob will be turned up further in coming months. But the illusion that we can somehow afford to continue spending at anything near current levels is disappearing. And all that spending, by the way, does not go to wasteful programs and fat-cat tax breaks. Most of it goes to us.
Since Medicare was enacted in 1965, there has been a sustained increase in government social-support spending. "Since 1959, the percentage of personal income attributable to government social benefits has increased from 5.9 percent to 17.7 percent," says economist Ed Yardeni.
An even bigger shocker comes from TrimTabs Investment Research. "Government social benefits—including Social Security, Medicare, Medicaid, and unemployment insurance—were equal to 35 percent of all private and public wages and salaries in the 12 months ended January," it said in a recent research note, "up from 10 percent in 1960 and 21 percent in 2000." Even if a big slug of these payments are related to the recession, we've clearly become dependent on government supports.
More importantly, in the short run, TrimTabs says the squeeze on spending at all levels of government will have a much bigger impact on consumer incomes and spending than is generally realized. As a result, it expects the Federal Reserve's stimulative monetary policies to be far from over.
In the meantime, here are some of the ways you can prepare for an era of smaller government:
Do it now. If you're on the fence about taking advantage of a government subsidy, don't wait. Maybe it's an energy credit or another home-improvement tax break. Maybe it's a low-income credit. If it's something that makes sense, don't wait until the program has been killed by budget cutters.
Get ready for service cuts. Do you use public transportation? What would happen if your bus schedule was changed or your stop even eliminated? Do you or someone you know depend on Medicaid for low-income health services? Well, you may be facing service cuts. Operating hours at libraries and other public facilities could be trimmed. The end of six-day-a-week mail service seems inevitable. Think about the things you depend on, and figure out how to make do with less.
There's an app for that. Expect government at all levels to accelerate the move to online services, saving labor and other expenses. So if you think you're too old for the digital age, think again. Maybe you can get used to eBooks after all; your public library will be "lending" them soon, if it doesn't already do so.
Be informed. Quick, how will health reform affect your wallet this year? What's the tax rate on property where you live, and is it going to change? Are there volunteer services you use that may be discontinued due to budget cuts? It's time to think about government services you use and depend on. How would your life change if they were reduced or eliminated? What can you do to anticipate and minimize the possible disruption to your life?
Get free medicare benefits. Medicare covers an impressive array of free and reduced-rate medical procedures and wellness benefits. Check out the benefits available to you and schedule time with your doctor to make sure you're doing everything you can to take the best—and cheapest—care of yourself possible.
Seek cheaper health coverage. Consumers tend to stick with their current Medicare coverage even if it is no longer the best deal for them. Every year, premiums, co-pays, and other terms change for Medicare Advantage, Medigap, and prescription drug policies. Make sure you shop carefully and get the best deal. Also, with Medicare and Medicaid likely to come under the budget knife, the pace of program changes will accelerate.
Avoid and fight invisible taxes. Politicians will still tend to raise taxes as a last resort, but that doesn't mean they won't be searching for new revenues. Be on the lookout for stealth revenues that governments seek to raise through new and higher fees. Maybe a capital project in your town will be peeled off into a "special" category with it's own occasional sinking-fund "fee." Of course, it's really a tax. Pay careful attention to property assessments and property tax rates. Be prepared to squawk at your city councilman or state legislator.