Projections Underscore Need for Entitlement Reform

The long-term budget outlook is grim unless changes are made to America’s biggest spending programs.

The United States Capitol dominates the skyline of Washington DC, November 22, 2013
The United States Capitol dominates the skyline of Washington DC, November 22, 2013 (IIP/Tim Brown)

Projections released by the Congressional Budget Office on Tuesday underscore the need for comprehensive reform of America’s biggest spending programs.

The CBO, an independent outfit, warns that the federal deficit will jump to $544 billion next year, or 2.9 percent of gross domestic product — the first time since 2009 that the shortfall is expanding relative to the size of the economy.

Over the next ten years, deficits would add up to $9.4 trillion unless significant policy changes are made.

The CBO sees the debt rising from $13.1 trillion last year, or 74 percent of GDP, to $23.8 trillion, or 86 percent, by 2026.

Warnings

The CBO has been warning for years that the long-term outlook will be grim if politicians do not rein in the country’s biggest spending programs: Medicaid, Medicare and Social Security, which jointly account for around half of total spending.

Yet reform is contentious.

Republicans have proposed to liberalize Medicare, which pays health care for seniors, and give states more power over Medicaid, the health-care program for the poor.

Democrats reject both proposals as a weakening of the safety net. Some even deny that Social Security, the government pension program, is in any sort of trouble.

But as the population ages — if slower than is the case in most other developed nations — there will simply be fewer workers per retiree paying into the pension fund.

Running out of money

Republicans, for their part, want higher defense spending and lower taxes. America can ill afford either, let alone both at the same time.

Entitlements, including President Barack Obama’s new health law, are expected to claim almost 14 percent of gross domestic product by 2035.

As early as 2025, federal tax revenues could be sufficient to cover only these mandatory spending commitments, even excluding unemployment benefits, leaving nothing for defense, education and infrastructure.