Living in a Fiscal Fantasy World

401k/Flickr

Once again we have evidence that the public--and their elected representatives--have little understanding of how much the entitlements contribute to our country's debt crisis. The Pew Research Center recently asked 1,502 adults which is more important, taking steps to reduce the budget deficit or keeping Social Security and Medicare benefits the way they are. Fully 60 percent of respondents said they would not change benefits. That does not mean Americans think a big deficit is a good idea, but they can't see cutting back on their government retirement benefits.

A similar thought echoed through the halls of Congress last week. Senate majority leader Harry Reid (D-Nev.) refused on Thursday to even talk about the possibility of Social Security reforms being part of the White House debt negotiations. House minority leader Nancy Pelosi (D-Calif.) was more direct, telling reporters Friday that she opposed any benefit cuts in Social Security and Medicaid.

If we expect to solve our debt and deficit problems, we must eventually face the fact that the major entitlement programs must be on the table. That includes Social Security, Medicare, and Medicaid. It also includes the new entitlement to generous subsidies for insurance through the exchanges that was authorized under the Affordable Care Act (ACA). The Congressional Budget Office (CBO) says those four programs will consume 70 percent of the revenue collected by the federal government this year. Including the fifth major entitlement--interest on the debt, which we are legally obligated to pay like the other entitlements without specific congressional authorization--that figure jumps to 80 percent. Can anyone dispute the need to reform entitlements in the face of those statistics?

Surely this is an artifact of a struggling economy, and will disappear when we get back to normal economic growth. No, unfortunately that is not the case. In 2021, CBO projects that spending under the four entitlements drops to "only" 59 percent of revenue. But failure to address the debt and deficit problem over the next decade drives up spending for the five entitlements, including interest, to 75 percent of revenue.

Things could be worse, and likely will be. Those numbers assume that future Congresses will not overturn cuts in Medicare that the chief actuary says are unreasonable. They include the 30 percent cut in Medicare payments to physicians scheduled for January and ACA's cuts in Medicare provider payments that mean Medicare will pay no more than Medicaid for services. CBO's "alternative scenario" assumes the physician cuts and some of the other reductions are repealed, which is very likely given Congress's track record over the past decade. In that case, the four entitlements spend 67 percent of revenue in 2021, and the five entitlements spend 91 percent.

Is there any hope that policymakers will come to their senses and treat entitlement spending as a serious matter that requires structural reform? Or are we condemned to the fantasy that taxing the rich and eliminating fraud and abuse in the health programs will be enough?

Not surprisingly, seniors are not ready to face the hard facts. They certainly do not want a big federal deficit and they do not want the government to default on its debt, but don't take one dime out of their federal benefits. That view is held strongly by seniors, who are already enrolled in what columnist Robert Samuelson calls middle-class welfare programs. It is a view that is hammered home on Capitol Hill by the politically powerful AARP, which claims over 40 million members.

Younger people are more skeptical, and therein lies some hope for the future. The Pew survey shows that 61 percent of people between 18 and 49 think Social Security and Medicare need major reforms. Those who are close enough to retirement to think they might benefit from the programs are less convinced; about half of those between 50 and 64 support reforms. Perhaps surprisingly, roughly a third of seniors agree that big changes are needed.

If the survey is accurate, that means about half of Americans think our major entitlement programs should be reformed. More importantly, the people who are paying most of the cost--the working-age population--is strongly in support of such action.

That is a start. We still have to reach agreement on what the reforms should be, but there is no reason not to begin the debate. Indeed, it is folly to wait since, as CBO shows, the situation only worsens with time. The barrier to even discussing the issue is politics. Maybe we should start the AAUP for unretired persons who have much to lose if we do not put our entitlement programs on a sound financial footing.

Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at AEI.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Joseph
Antos

What's new on AEI

We still don't know how many people Obamacare enrolled
image The war on invisible poverty
image Cutting fat from the budget
image Speaker of the House John Boehner on resetting America’s economic foundation
AEI on Facebook
Events Calendar
  • 22
    MON
  • 23
    TUE
  • 24
    WED
  • 25
    THU
  • 26
    FRI
Monday, September 22, 2014 | 2:30 p.m. – 4:00 p.m.
Policy implications of the new US labor market normal

We welcome you to join us as a panel of economists discuss US wage and price prospects in the coming months and the implications for the Federal Reserve’s current unorthodox monetary policy.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.