In the midst of all the recent international news, you might have missed President Obama’s new budget proposal. Even though we haven’t passed a budget in about five years, it’s still important because it is the clearest view of the administration's priorities for the future.
It has some good ideas, but avoids an incredibly important challenge -- the most pressing long-term budget decision we have to make. What should we do about the bill that takes up two thirds of our annual budget?
That challenge is entitlements.
Look at the coming fiscal year, the government is set to lay out $3.8 trillion -- 70% of which is for mandatory spending programs. Mainly Social Security, Medicare and Medicaid.
Now, put aside the partisanship. This is just basic math.
The nonpartisan Congressional Budget Office projects that each year, for the next 25 years running, our government programs will cost more than our government takes in.
And unsurprisingly, the CBO also projects that our debt to GDP ratio will only continue to grow steadily over the next two decades, with the ratio reaching peaks that the U.S. hasn’t seen since World War II -- where our debt dwarfs the size of our entire economy!
The primary driving force behind these huge increases is entitlements.
Again, back to the numbers: Social Security spending will jump from about 5% to 6% as a percentage of GDP.
It’s even worse for health programs, like Medicare and Medicaid, which almost double from 4.6 to 8%! Over the next 25 years these programs will grow from about 7% of our economy to more than 14%.
As a matter of public policy, this debate is not just about what programs are “good,” it’s about what programs and budgets are sustainable and affordable.
I’ve been arguing that we should address this gap sooner rather than later. We should do it fairly, for today’s retirees, and realistically for tomorrow’s, including my generation.
But, for some people, even talking about reform means you’re automatically “anti-social security” or “against the elderly.” Now, that rhetoric might work for campaigning, or for the special interest groups, and I get that. But it doesn’t do much for the people who count on these programs -- or for those like me who wonder whether or not they’re sustainable enough to last another 50 years in their current form.
So it was no surprise that after my recent commentary on these budgeting issues, I got a number of -- let’s call them “passionate responses” -- suggesting I was misleading and misinforming millennials about the realities of these programs.
An article in the LA Times went as far as to say I want to “lead my generation into poverty.” That kind of hyperbole is basically beneath response, but, the article did raise a worthwhile distinction about the rising age of retirees -- and how the data is more complex than people simply living longer. “Life expectancies from birth have risen,” the article notes, “But the difference there is almost entirely due to improvements in infant mortality since 1935. The change in life expectancies from age 65 is much lower.”
Now that’s a useful distinction as we look at all this data.
But the article also gets two key things wrong. For one, the idea that basically doing nothing about the budget shortfalls, and having deficits forever, will somehow be OK. That the programs will just survive. They may “survive.” But not as we’ve come to know and rely on them.
Here’s the deal: It’s a mathematical impossibility that you can continue to run a budget deficit, year in and year out, and somehow never be crushed under the mountain of debt. And this is even more of a reality as the interest cost on our debt increases dramatically in coming years with rising rates.
Secondly, the article perpetuates the assumption that any talk of reform means you’re selling out the elderly! It doesn’t have to mean that. Reform could include means testing, or slowly increasing the retirement age for people who are decades from when they will actually receive their benefits. Those would be some of my suggestions. Others might support raising the income cap on the payroll tax -- liberals in particular may like that more, but it’s also a budgetary reform.
And on Medicare, I think the Simpson-Bowles plan is a great place to start. They propose things like slowly raising the Medicare eligibility age from 65 to 67 by the mid-2030’s, and expanding means-tested Medicare premiums so that those with the highest income would pay even more. Great. Let’s debate those options.
By the way, even if you don’t want to take my word on any of this, I’m not the only one who thinks we need to debate it: SO DO DEMS.
They were on to something. So was President Obama when he proposed social security reform in his 2014 budget. No mention of it this year.
And let me be clear -- it’s because these programs are worthwhile that so many people care about making them sustainable. Our goal should be to explore any option to fund and maintain entitlements, while also being proactive about our long-term debt realities. In fact, my generation depends on it!