Entitlements are still the biggest source of federal deficits
The federal government’s current spending spree has raised serious concerns among those who still think deficits matter. But as those folks and others have long known, the prime driver of Uncle Sam’s debt problem isn’t the latest crisis, or the current Oval Office occupant. It’s entitlement spending. And that problem is getting worse:
The far more important fiscal issue is that pre-COVID-19 entitlement programs — chiefly Medicare and Social Security — set the U.S. on an unsustainable fiscal path long before the pandemic.
The CBO projects that Medicare spending as a percentage of GDP will double from 3.1 to 6.3 percent over the next 30 years. Social Security as a percentage of GDP will increase from 5.2 percent to 6.3 percent. Federal revenue, however, is projected to grow at just 0.49 percent per year over the same period, increasing from 16 percent to 18.5 percent of GDP, implying an ever-increasing deficit, other things equal.
Tax hikes, alone, won’t close the gap, either – nevermind the political costs of raising taxes to support either program. But politicians aren’t willing to address entitlement spending even under the best of circumstances…unless it’s to expand them to even more people:
Gradually phased in higher ages of eligibility (for Social Security and Medicare), higher deductibles and copays, and certain coverage limitations in Medicare can slow expenditure growth while simultaneously encouraging more price sensitivity in health care decisions. This is desirable independent of the debt; it is critical in light of the debt.
This is the opposite perspective from that of Democratic legislators, who want to expand Medicare. Lowering the age of eligibility and expanding the menu of services will only speed the country’s fiscal decline.
Expanding an entitlement ensures its base of support among voters is broad, deep, and enduring. It’s also fiscally reckless. But just as reckless is pretending there’s no problem with the existing system. Reforms are needed…and they will come.
The only question is who dictates those reforms: the people acting through their elected officials, or debt holders demanding their interest payments, regardless of where the money comes from.