That Tiger in the Corner Isn’t There .J.J. Really, He’s Not : How long will politicians ignore the entitlements crisis?
Economists using the most sophisticated tools of their craft can’t forecast with any assurance of precision what unemployment, interest rates, business expansion, the trade balance or the Dow Jones industrial average will look like even two quarters from now. But that hasn’t stopped Republicans and Democrats in Washington from pretending that they can produce a credible fiscal policy leading to a balanced budget on the basis of what the Congressional Budget Office estimates the economy will look like a full seven years down the road. Keeping the public occupied with this economic farce allows the nation’s political leaders virtually to ignore the gathering demographic avalanche that threatens to bury all of their budget estimates and leave the federal government without funds for any discretionary programs.
The inescapable facts--hardly news--are that Americans are living longer and that the number heading toward retirement age is about to explode, meaning that the consumption of expensive entitlements like Medicare must inexorably expand. Almost no one in Washington whose responsibility it is to deal with such tough questions as how this soaring demand will be paid for has yet shown any serious interest in acting to ease the looming peril.
A year ago the Bipartisan Commission on Entitlement and Tax Reform issued a report fat with ominous tables and analyses, but lean for all too apparent political reasons on any concrete, consensus-based recommendations for heading off an unprecedented fiscal crisis. The commission reported that by 2030, unless changes in policy are made soon, entitlements--such as Social Security, Medicare, Medicaid and federal retirement programs--”will consume all tax revenues collected by the federal government.” Add the interest that has to be paid on the national debt to this list of mandatory spending requirements and the year when there won’t be money to pay for anything else--defense, environmental protection, education, whatever--moves up, to 2012. A quarter-century ago entitlement spending came to about 20% of America’s gross domestic product. By 2030 it will be about 37%. “The present trend is not sustainable,” said the commission. No, indeed. Neither is the apparent utter absence of political will to confront what is so rapidly approaching.
Budget negotiators in Washington are agreed that the rate of growth in entitlements like Medicare and Medicaid must be slowed. But they are looking only seven years ahead. What they have not adequately addressed is just how to meet the increasing demand for entitlements that will accompany the movement of the 76 million members of the post-World War II baby-boom generation into the ranks of the retired. In the single decade after the first baby boomers leave the labor force in 2008, the retired population will increase by nearly 30%. Meanwhile, the ratio of active workers whose payroll taxes help support the retirees will have shrunk from five per retiree to three.
The choices are inescapable. Entitlements must be reduced and, almost certainly, taxes to pay for them must be raised. The eligibility age for receiving Social Security benefits is scheduled to begin rising slowly early in the next century. As the American life span increases, the eligibility age for Medicare will also probably have to be raised, and Medicare user fees will have to go up. Automatic cost-of-living increases for Social Security should be cut. Ideas for partially privatizing Social Security by allowing or requiring market investment for a portion of payroll taxes deserve to be seriously debated.
Many of these are options few want to hear, and no politician is eager to embrace. But delay can only worsen the problem. The entitlement crisis bodes to be the most ignored major issue in this year’s national political campaign. Americans--retirees, those nearing retirement and their children--will all pay dearly if it is not soon and responsibly addressed.
