DenialCommentary by John C Goodman
February 09, 2013
There was a time, not long ago, when both Republicans and Democrats agreed that something had to be done about entitlement spending — especially spending on the elderly. But no longer.
- Although he promised in his first run for the presidency to reform Social Security, Medicare and Medicaid, Barack Obama seems increasingly unwilling to do any of that now.
- The leftwing of the Democratic Party seems increasingly shrill in its insistence that there is no need for any fundamental reform of entitlement spending.
- Even in the left-of-center think tanks and on the liberal blogs, one finds increasing denial that any fundamental change is needed.
This last development is especially disappointing. Tyler Cowen writes:
I see the current American Left as rapidly losing what it once knew about the need for entitlement reform. This is a shame, it does not augur well for our fiscal future, and it remains an under-reported story. I see it happening right under my nose, day by day, article by article, blog post by blog post.
Our budget problem should not be a mystery. Basically, spending on government entitlement programs has been growing at almost twice the rate of growth of our national income for the past 40 years. Health care entitlements have been growing more than twice that fast. Entitlement spending is already more than half of the federal budget and soon it will be more than half of all government spending — including state and local governments.
You don’t need to be an economist or a mathematician to know that if the cost of something you are buying is growing at twice the rate of growth of your income, you are going to be facing deficits that will get larger and larger through time.
When he was head of the Congressional Budget Office, one-time Obama adviser Peter Orszag estimated what tax revenues would be needed to stay on the spending course we are on. The projection: By mid-century, the average family will have to fork over two-thirds of its income to the federal government and upper-income families will have to surrender more than 90 percent!
And that was before the passage of Obama Care, which creates a new, massive entitlement for people under 65 years of age. Right now, the real cost of Obama Care is not showing up in official projections because of two budget gimmicks. The law assumes that Obama Care entitlements will be paid for by (1) slowing the rate of growth of Medicare to the growth of the economy as a whole and (2) slowing the growth of federal subsidies for the insurance everyone will be required to buy to the growth of the economy as a whole, even though health care costs will be growing at twice that rate.
The first assumption will crumble as soon as seniors discover doctors won’t see them and hospitals won’t admit them and they decide to march on Washington as a result. (See the Medicare Actuaries report.) The second assumption will crumble as soon as everyone else discovers they have been hoodwinked and joins the seniors in their public outrage.
The problem of entitlement spending deficits, by the way, is not something in the distant future. Don’t be misled by “trust funds” that are holding nothing more than IOUs that the government has written to itself. All our entitlement programs are run on a pay-as-you-go basis. Every dollar of payroll tax revenue is spent the very minute, the very second, the very day it comes in the door. And here is the bottom line: we are spending more than we are taking in right now. That is, we are experiencing a cash flow deficit that is growing larger and larger through time.
On the present course, we will need one out of every four general revenue dollars at the federal level to cover the cash flow deficits in Social Security and Medicare by 2020. We will need one in every two by 2030. To balance the budget without raising taxes, the government will need to stop doing about one in four other things it is currently doing in seven years. It will have to stop doing one of every two things it is currently doing in 17 years.
Nate Silver summarizes the state we are in this way:
We may have gone from conceiving of government as an entity that builds roads, dams and airports, provides shared services like schooling, policing and national parks, and wages wars, into the world’s largest insurance broker.
Most of us don’t much care for our insurance broker.