Entitlement reform key to U.S. future
February 27th, 2013
This piece was originally published in Politico.
As the sequester blame game hits fever pitch this week, Republicans’ stance on taxes is simply indefensible, falling hundreds of billions short of even their own prior positions. But as Democrats, we also share a large portion of responsibility for the coming cuts to domestic discretionary spending, as the party has decided in both action and rhetoric that meaningful fixes to the major entitlement programs of Medicare, Medicaid and Social Security are off-limits.
Think about it. Over the past three years, from debt ceiling deals to the supercommittee and the fiscal cliff, social insurance programs have escaped virtually unscathed while every other category of spending took some hit and revenue grew. And because of the sheer enormousness of the Big 3 entitlements, Democrats face a serious new crisis that is closer to home and will linger long past the sequester: There is now barely a farthing left in the budget for any new investments.
Over the past century, Democrats can boast two major economic legacies. The first is the safety net programs of the New Deal and the Great Society — successful programs that lifted the elderly and vulnerable out of poverty. The second is the New Frontier investment programs defined and expanded under President John F. Kennedy. These investments in science, space, defense, education, as well as highways, rails, ports and medical breakthroughs helped power the U.S. economy during the latter half of the 20th century.
For the past 50 years, these two Democratic legacies have been on a collision course. In the mid-1960s, federal spending on investments outpaced those of entitlements by 3-to-1. By the mid-1970s, we spent one dollar on investments for every dollar that went to Medicare, Medicaid and Social Security. Last year, it was one dollar for investments for every three in entitlements. In 10 years, the ratio will be 1-to-5.
The problem is this: During this decade and the next, the number of Americans over the age of 65 will jump by 75 percent while those of working age — the people who fund entitlements through their tax contributions — will nudge up by just 7 percent. On top of that, entitlement benefits typically grow faster than both inflation and wages, and can pay out significantly more than people pay in. The median lifetime Medicare taxes paid by new retirees in 2030 will be $180,000; while the median paid benefit will be a staggering $664,000. Vastly more elderly, combined with steadily larger retiree benefits, and relatively fewer taxpayers to fund them create an untenable budget situation unless addressed.
One answer, of course, is taxes. There is certainly a need to increase taxes beyond the rates set in the fiscal cliff deal. For example, capping deductions on high earners would generate nearly $500 billion in new revenue over 10 years. But that’s a drop in the bucket compared with the $25 trillion we’ll spend on entitlements over that same decade. More important, as a matter of generational justice, it’s time our party demanded that the bulk of new tax revenue not go to already bulging entitlements but to investments in future generations.
To his credit, President Barack Obama has proposed modest entitlement savings. He has called for chain-weighting the consumer price index — a technical fix that has the effect of slightly reducing cost of living adjustments for Social Security. He has been willing to put Medicare savings on the table in negotiations to reach a “grand bargain.” But we also know what the president does when he really wants something. He travels across the country making the case for his ideas. He activates his enormous grass-roots base. He submits detailed proposals to Congress. In this case, though, he has called on Republicans to make the first move on entitlements.
Our government used to do great things to create growth and opportunity. We built huge dams and modern highways, railways and ports. We landed people on the moon, cured incurable diseases, sent a nation to college, gave kids a head start and created the Internet. We don’t do nearly enough of this anymore.
In the State of the Union, the president called for a new federal program to give 4-year-olds free pre-K to get a boost in our competitive world. Democrats used to place these kinds of investments at the top of the priority list. Let’s not pretend these are at the top now.
Jon Cowan and Jim Kessler, both Democrats, are co-founders of Third Way, a moderate Washington, D.C., think tank.