Reality has a way of tempering ideological views. So it is with the fierce debate over government spending. For the anti-spending hawks, the uncomfortable message from the implementation of sequestration cuts is that they really hurt, that much of government spending is not at all wasteful and that there is a real human cost here. For the crowd that continues to favor economic stimulus, often by stressing the anti-growth consequences of European austerity measures, it is notable that businesses and investment markets have continued to grow in the face of reduced government spending. What do they know that we don't?
Meanwhile, countless senior organizations and social service nonprofits are howling over possible cuts. The House of Representatives has passed another version of tough budget love from Rep. Paul Ryan (R-Wis.). The Senate passed its first budget in four years but just barely. Now that the boundaries of these opposing political views have been defined, the volume knob will be turned up in coming months. But the illusion that we can somehow afford to continue spending at anything near current levels is disappearing. Smaller government is inevitable.
Since Medicare was enacted in 1965, there has been a sustained increase in government social-support spending. Government benefits now account for more than a sixth of the personal incomes of all Americans—triple the level of 50 years ago. And looking just at such benefits in recent years, they have been close to 35 percent of wages, or more than 70 percent higher than they were as recently as 2000. Some of this increase is due to recession-related support payments, and they will decline as the economy recovers. Still, the trend is not sustainable, and it threatens to get worse as waves of baby boomers retire and begin using Medicare and drawing Social Security.
Here are seven ways you can prepare for an era of smaller government:
1. Do it now. If you're on the fence about taking advantage of a government subsidy, don't wait. Maybe it's a tax credit or another home-improvement 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.
2. Get ready for service cuts. Do you use public transportation? What would happen if your bus schedule was changed or your stop 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.
3. 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.
4. Be informed. Quick—how will health care reform affect your wallet in 2014? 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?
5. 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.
6. 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.
7. 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 its 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.