Analysis

America’s Looming Entitlement Disaster

America cannot afford massive entitlement spending anymore but no politician likes to take away benefits from poor people and seniors.

After billions in stimulus spending and bailing out banks and automakers, America’s public finances are in dire straits. Last year, the federal deficit reached almost $1.5 trillion while the debt has grown to $14 trillion, equaling the total annual economic output of the United States. Americans may need to brace for austerity but plans to rein in spending are few and controversial.

Republicans have pledged austerity in the new Congress. Several incoming Tea Party conservatives have promised to cut spending by up to $100 billion but this would not solve the country’s budget woes for the long term. Entitlements, which account for approximately a third of federal spending and will likely swallow up half of the budget by the end of this decade, have to be abolished or reformed in order to restore fiscal balance. But neither party likes to take away benefits from low-income families and seniors.

That is not to say that lawmakers don’t recognize the problems. According to Republican congressman Phil Gingrey of Georgia, 38 states across the country are already taking funds from other programs, including education, to continue to pay for Medicaid. On the Fox Business Network last month, he lambasted the Democrats’ health-care reform bill which prohibits states from making any changes to Medicaid for the next three years. “In 2014,” he added, “every state has to cover individuals up to a 138 percent of the federal poverty level.” Currently only Americans with incomes below the poverty line are eligible for health-care benefits.

Another congressman who has warned against runaway entitlement spending for many months is Wisconsinite Paul Ryan. He expressed concern in February of last year about Americans being “more worried about their material support from goverment than they are about their own liberties.” Many lawmakers in Washington believe that it is their job not merely to equalize opportunity, but to equalize the outcomes of peoples’ lives, he said. “The more we ask government to do for us,” Ryan warned, “the more government can take from us.”

Ryan has designed deep spending cuts and entitlement reform, including a privatization of Social Security for those who are under the age of 55. Medicare would be similarly dismantaled if Ryan had his way. Current recipients and those enrolling over the next ten years could continue to enjoy today’s program whereas in 2021, the system should become voucher based for new recipients.

On NBC’s Meet the Press last November former Federal Reserve chairman Alan Greenspan expressed support for Ryan’s plans, noting that with government borrowing over a third of what it spends, to find spending cuts, lawmakers have to look for “not individual, piecemeal cuts or taxes,” but reconsider whole programs instead.

As incoming chairman of the House budget committee, Ryan will be at the helm of trimming federal expenditures for the next two years. Democrats, who maintain a majority in the Senate, have already announced that they will “protect” public pensions against reform efforts however.

When the chairmen of the president’s debt commission released their recommendations last November, then Speaker Nancy Pelosi professed that entitlement reform “must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare.” The president himself has pledged to preserve Social Security “forever.” He denounced privatization as “an ill conceived idea that would add trillions of dollars to our budget deficit while tying [people’s] benefits to the whims of Wall Street traders and the ups and downs of the stock market.”

Raising the retirement age by one month every two years after it reaches 67 under current law would achieve nearly $4 trillion in deficit reduction through 2020, according to the debt commission. The pension age would reach 68 around 2050 and 69 by 2075. But even under those circumstances, Social Security remains a “Ponzi scheme,” said Texas governor Rick Perry in an interview with Newsweek. He advised congressmen who aren’t willing to cut spending to “just go home.”

With Democrats adamantly opposed to entitlement reform and Republicans similarly hostile toward the notion of cutting defense spending, there wouldn’t seem to be much reason to assume that Washington will be able to avert the looming entitlement crisis.