Facing up to bringing down entitlement spending
On the federal debt crisis, inertia has all the momentum. A compelling political logic favors inaction.
America's debt problem is mainly an entitlement spending problem. Serious entitlement reform would involve concentrating limited resources on the poor, eliminating subsidies for the rich and moving support for the middle class from a system of defined benefits to defined contributions. However skillfully this transition is designed, it will mean a middle-class benefit cut. That's why, in 2005, Republicans and Democrats both fled from Social Security reform like startled grouse. Even worse, this year President Obama and the Democratic Congress created a new health entitlement funded mainly by taking money from Medicare, making that program more difficult to stabilize in the future. The Obama administration has not only avoided reform; it has also complicated the job for future administrations.
The need for entitlement reform is almost universally conceded. The politics of entitlement reform, however, seem hopeless. The only consistent advocates of responsibility are congressional deficit hawks -- generally a finger-wagging, dyspeptic bunch. Being right does not make them attractive, and there will never be enough of them to carry a political task this heavy. If the debt debate is defined in Congress as pitiless austerity against business as usual, business as usual will regularly prevail.
But the vast scale of the debt problem creates an unexpected political possibility. According to the Congressional Budget Office, spending on mandatory health programs and Social Security is expected to grow from about 10 percent of gross domestic product today to roughly 16 percent in 2035. By way of historical comparison, government spending on all of its programs and activities has averaged about 18.5 percent of GDP over the past four decades. Put another way: In 25 years, nearly the whole portion of the economy we spend on government will be spent on entitlement programs alone. Just about every other function and priority of the federal government will be swallowed up by increased spending on health care and retirement, or the percentage of the economy taken by taxes will need to dangerously increase. This is the other option.
Members of Congress should take special notice. Are you an advocate of growth-oriented tax cuts like, say, Sen. Jon Kyl (R-Ariz.)? Without entitlement reform, future tax reductions are a budgetary impossibility. Support defense spending like Rep. Duncan Hunter (R-Calif.), or increased resources for child nutrition like Rep. George Miller (D-Calif.)? Want more emphasis on fighting poverty, low-income housing, foreign assistance, health research, national parks, environmental protection, border patrols or plain old congressional pork? All will be severely constrained by the current growth trend in entitlement spending.
Every federal budget involves a debate between liberal and conservative priorities on discretionary spending and tax reductions, expressed in the production of 12 annual appropriations bills. But the trajectory of mandatory spending threatens all of those priorities. Properly understood, the budget battle is not between big spenders and budget hawks. It is between those who want to spend larger and larger portions of the budget on health care and transfers to the elderly, and those who want to use budget resources for anything else.
The coming debt debate will be sensitive and uncomfortable because it has undercurrents of generational conflict. Since the New Deal, America has seen a massive transfer of wealth from young to old through entitlement programs such as Social Security and Medicare, with many dramatically positive results. But that transfer is quickly escalating. Baby boomers are beginning to retire in surging numbers. People are living longer and collecting benefits for more years -- a good thing, but expensive for federal programs. And health costs are increasing faster than are other forms of inflation. In an entitlement system, these public commitments expand automatically, requiring political intervention to change them. Devoting resources to the sick and elderly counts many achievements and benefits. But we are reaching a point where these important priorities threaten to overwhelm everything else.
The political constituency for accelerated mandatory spending, including AARP and health providers, is powerful on both sides of the aisle. But the coalition for entitlement reform should be broad as well, including everyone from tax cutters to poverty warriors to pork spenders. When members of Congress find their legislative discretion severely narrowed by mandatory commitments, they may awaken to difficult, necessary responsibilities. For them, it is a choice between reform and irrelevance.
Entitlement reform remains an uphill political cause -- but maybe not a hopeless one.