As a grumpy think tanker, I’m not alone. Back in April, a coalition of Washington policy nerds called the Brookings-Heritage Fiscal Seminar released a sobering document entitled “Taking Back Our Fiscal Future.” The authors spanned the ideological spectrum, including analysts from the Right (Heritage Foundation & American Enterprise Institute), and the Left (Urban Institute and Brookings Institution). The upshot was that this year’s political candidates aren’t saying much about the biggest domestic problem facing America: entitlements.
“When the next president and Congress take office in January 2009,” the seminar participants observed, “they will face one crucial question that has been largely absent from the current election campaign: how to narrow significantly the enormous gap between projected federal spending and revenues.” With Social Security, Medicare and Medicaid spending largely on autopilot, and slated to dominate future spending, the ability of any politician to address other domestic priorities will be severely constrained.
Think that the United States has inadequate and deteriorating infrastructure in need of modernization? You’re right, but prospects for more investment are dimming. Think that major tax increases to finance skyrocketing entitlement benefits will discourage entrepreneurship and capital formation while squeezing household budgets?
The Bush administration didn’t help matters with its overspending and the addition of Medicare Part D. Earlier, the Clinton administration missed an opportunity to enact significant entitlement reforms during the 1990s.
In their paper, the Brookings-Heritage folks exploded some of the myths sometimes voiced on the Right or Left to downplay this long-term fiscal crisis. Although pro-growth policies, restraint in discretionary spending, and health-care reform could ameliorate future deficits a bit, they won’t eliminate them. Tax hikes could reduce the deficits a bit, too, but both accounting and economic realities intrude. “Raising taxes will not address the underlying forces – population aging and health care cost growth – driving spending and revenues apart in the coming decades,” the authors wrote. “Even raising revenues as a percent of GDP to European levels – levels that are unprecedented in the United States — will not be sufficient.” I might add that burgeoning entitlements don’t just pose fiscal challenges. They also signal a troubling change in familial and social relationships. Seniors ought to be cared for primarily by their families and communities, not by impersonal federal programs that transfer dollars from those who don’t have older living relatives to those who do.
Of course, many citizens have made life-altering decisions on the basis of the promise of perpetual Social Security benefits, full Medicare coverage, and Medicaid financing of nursing-home care (an issue that intrudes into state budgeting here in North Carolina and elsewhere). Sudden, wrenching changes would be unfair and impossible. The Brookings-Heritage think tankers make no such proposal. Instead, they recommend that the next president and Congress enact explicit long-term budgets for Social Security, Medicare, and Medicaid that are sustainable, limit future increases, and require congressional review every five years.
Beyond general principles, the coalition outlines some specific ideas that could be part of a broad-based entitlement reform, including progressive indexing and other means-testing methods, mandatory personal savings accounts, changing the tax treatment of benefits, encouraging private long-term care insurance to reduce reliance on Medicaid, and replacing payroll-tax financing with some other federal tax levy.