EVENTS

Date:	Tuesday, April 15, 2008
Time:	12:30 PM -- 2:00 PM
Location:	Wohlstetter Conference Center, Twelfth Floor, AEI 1150 Seventeenth Street, N.W., Washington, D.C. 20036

Fixing the Entitlement Problem by Fixing the Budget Process

WASHINGTON, APRIL 21, 2008 -- Unsustainable deficits in the federal budget threaten the health of the American economy. That was the message delivered by budget experts at AEI on April 15. They discussed the recently released report Taking Back Our Fiscal Future, which reflects the consensus of sixteen top economists and budget experts from across the political spectrum. The authors argue that the first step toward restoring budget responsibility is to reform the budget decision process so that Social Security, Medicare, and Medicaid--the major drivers of escalating deficits--are no longer mushrooming on autopilot.

According to the Congressional Budget Office, these entitlements already make up 40 percent of the federal budget. If recent trends continue, by 2080, Medicare and Medicaid alone will equal as large a fraction of our nation's economy as the entire federal budget does today, leaving less money available for education, energy, the environment, and other domestic policy priorities.

"Congress needs a mechanism to force itself to deal with the realities of the exploding budget trends and in particular the entitlement programs," said AEI's Joseph Antos, one of the signatories of the report.

Stuart Butler of the Heritage Foundation, a coordinator of the report, noted the group is concerned with financing programs that pass on obligations to future generations. He argued that the current budget process prevents a long-term decision-making process and stifles debate on how best to resolve issues that jeopardize the fiscal health of our country. Butler explained that the growth of current entitlements should get more attention from all political parties because they are "squeezing out" other social programs and eroding our long-term economic standing.

Taking Back Our Fiscal Future calls for explicit long-term budgets that set limits on automatic spending growth for the three entitlements. It would require Congress to review each program's performance every five years. If a program falls off the agreed-upon course, Congress and the president would have to agree upon a policy change that would address the budget issue. If no agreement is reached, a budget trigger would initiate a process of a reduction in spending, an increase in taxes, or a combination of both to ensure that the program will meet its long-term goals.

Wendell Primus of House Speaker Nancy Pelosi's office and Robert Greenstein of the Center on Budget and Policy Priorities offered a critique of the report. Primus said that the report does not demonstrate why we need a change. The use of trust funds, he said, has kept Social Security on track from 1935 to 2040 and has also worked for Part A of Medicare. Other mechanisms--including pay-as-you-go, multi-year discretionary appropriation caps, and a sustainable growth rate--would work with political will behind them. He argued that revenues and tax expenditures must be part of the solution.

According to Greenstein, the report "fails to focus on the main driver of our long-term fiscal problems: the relentless rise in health care costs throughout the U.S. health care system." He also asserted that the report failed "to put equal weight on the hundreds of billions of dollars of open-ended entitlements that are delivered through the tax code . . . [that benefit] affluent Americans." Greenstein added that there was an inherent bias in the report: it would not place any restrictions on new deficit-financed tax cuts, while Medicare, Medicaid, and Social Security would face automatic cuts.

Isabel Sawhill of the Brookings Institution, another coordinator of Taking Back Our Fiscal Future, addressed these criticisms. She said the report proposed that the triggers can include spending cuts or revenue increases; however, taxes alone cannot be the only answer to this fiscal dilemma because the debt projections are so large. She argued that existing mechanisms like pay-as-you-go and caps fail to address the huge deficits that will accrue even without new tax cuts or spending increases. "While we're waiting to get the political will to do the major transformative health care plan . . . this fiscal clock is going to be ticking and these deficits will be dangerously high," she said.

Former representative Jim Moody (D-Wisc.), a trustee of Americans for Generational Equity, agreed with Primus and Greenstein that other budget mechanisms should be considered, but he argued that those are incremental steps and that much more drastic change is necessary. Moody said that one of the largest externalities of having the entitlements on autopilot is the loss of public trust in the U.S. system. He said that Congress practices "self-serving behavior . . . that avoids serious scrutiny in order to get by in the next election. It avoids choices that the public has the right to hear about and have Congress decide upon before they face the next election." Moody stated that democratically elected officials can no longer be immune from subjecting these programs to serious annual review.

--KRISTY HAWLEY

For video, audio, and more information about this conference, visit www.aei.org/event1707/.

AEI's Joseph Antos and Robert B. Helms research the policy challenges facing Medicare and edit AEI's Studies on Medicare Reform series. Volumes in this series include The Diagnosis and Treatment of Medicare, by Andrew J. Rettenmaier and Thomas Saving, and, most recently, Markets Without Magic: How Competition Might Save Medicare, by Mark V. Pauly.

For more information about AEI's Health Policy Studies program, visit www.aei.org/health/ or contact Kristy Hawley at kristy.hawley@aei.org or 202.8625920.

For media inquiries, contact Véronique Rodman at vrodman@aei.org or 202.862.4870.

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