Getting Serious About Entitlement Reform

July 17, 2014

The latest long-term budget outlook from the Congressional Budget Office deserves more than just the spate of (well-done, mostly) one-day news stories it received this week. Its report on the coming crisis caused by entitlement spending should be setting the public policy agenda, and on a journalistic front, should be fodder for more serious in-depth reporting. Business Roundtable has certainly made the issue one of its top priorities, proposing needed reforms to restrain spending and save the programs, e.g. Medicare and Social Security.

The CBO's summary is striking, or should we say scary, especially as it relates to entitlement spending.

Federal spending would increase to 26 percent of GDP by 2039 under the assumptions of the extended baseline, CBO projects, compared with 21 percent in 2013 and an average of 20½ percent over the past 40 years. That increase reflects the following projected paths for various types of federal spending if current laws remained generally unchanged (see the figure below):
  • Federal spending for Social Security and the government’s major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through the exchanges created under the Affordable Care Act—would rise sharply, to a total of 14 percent of GDP by 2039, twice the 7 percent average seen over the past 40 years. That boost in spending is expected to occur because of the aging of the population, growth in per capita spending on health care, and an expansion of federal health care programs.

Sen. Orrin Hatch (R-UT), ranking member of the Senate Finance Committee, correctly highlighted the dire consequences of this runaway entitlement spending.

Runaway Entitlements Will Increasingly Choke Off Discretionary Spending: CBO’s data show the dire consequences of that runaway entitlement spending. According to CBO: “…total spending on everything other than Social Security, the major health care programs, and net interest payments would decline to 7 percent of GDP by 2039—well below the 11 percent average of the past 40 years and a smaller share of the economy than at any time since the late 1930s.” This means that runaway entitlements are choking off the federal government’s financial ability to fund infrastructure, education, defense, and a host of other “discretionary” spending programs.

Business Roundtable believes that reforming Medicare and Social Security is an essential element of any plan to restore fiscal stability to the United States, key to reviving the economic growth that has escaped the country since the Great Recession of the last decade. (Forbes, June 25, "U.S. GDP Dropped 2.9% In The First Quarter 2014, Down Sharply From Second Estimate.") Indeed, BRT has developed a set of reform principles for modernizing both Social Security and Medicare, proposing modest changes that not only restrain spending but also preserve the programs for future generations. (Full report, "Social Security Reform and Medicare Modernization Proposals.") Washington's current approach amounts to whistling past the graveyard, putting the life of Social Security and Medicare on the line. Obligations will not be met, with real-world consequences for the American people who rely on these programs.

Congress and the Administration know that entitlement programs as now structured cannot be sustained. They understand that they will crowd out necessary federal spending on other legitimate and needed programs. CBO's latest budget report again drives home the necessity of action. So when is it going to happen?