September 30, 2014

Tweedledum and Tweedledee

Facing Facts Alert 13

FACING FACTS The Truth about Entitlements and the Budget A Fax Alert from The Concord Coalition Volume II, Number 1, January 19, 1996 TWEEDLEDUM AND TWEEDLEDEE According to the popular media, Congress and the White House are locked in a fateful struggle that will alter the size and shape of government "more profoundly than anything since the New Deal." Hardly. The central budget story of the past thirty years has been the explosive rise in entitlements as a share of federal expenditures and the national economy. Under both budget strategiesuRepublican and Democratic -- that will be the story of the next thirty years as well. Where's the Revolution? To judge by the administration's apocalyptic rhetoric, you'd think that Congress was indeed poised to halt the advancing entitlement juggernaut in its tracks. But this simply isn't souespecially if we look beyond Washington's myopic seven-year time horizon.* The proposals to "end welfare as we know it" are small fiscal potatoes. Social Securityunearly twenty times as large as AFDCuis off the table by bipartisan consent. As for federal health benefits, the other big cost center of the budget, the projected current-law growth is so rapid that even the GOP's original (vetoed) Balanced Budget Act would have left Medicare and Medicaid on track to double as a share of GDP by 2020. Since then, the proposed savings has dwindled -- from an initial (seven-year) figure of $359 billion in the BBA to $253 billion in the GOP's January 6 proposal. Let's cut to the bottom line. Under current law, federal entitlement outlays are scheduled to climb from 10.9 percent of GDP in 1996 to 12.1 percent in 2002 and 14.6 percent in 2010uthen, as aging Aquarians swell the benefit rolls, shoot up to 22.5 percent of GDP in 2030. If the administration's January 6 budget proposal became law, entitlements would rise to 21.0 percent of GDP by 2030. If the Republicans pull off their "revolution," entitlements (under the GOP's December 15 proposal, the most recent for which complete figures are available) would still rise to 20.3 percent of GDP. Yes, the GOP takes a slightly bolder stance on entitlementsuand achieves slightly larger savings. It also makes a nod at the long-term problem by proposing to cap Medicare and Medicaid outlays after the year 2002. We discount these caps because they are mere fiat declarations: The GOP has attempted neither to specify the reforms nor build the consensus necessary to stay under them. The best that might be said of the caps is that they solve the Medicaid problem by punting it to the states -- which is to say that the only problem Congress "solves" is the one it explicitly refuses to face. A Bipartisan Problem The long-term projections of entitlement spending ought to be of grave concern to both parties. For Republicans, who claim to care so much about the size of government, the concern is obvious. For Democrats, it is less obvious but no less real. Many may like (or at least not mind) big government. But the reason they like it is that it has enabled them to advance public purposes that they will no longer be able to afford. To spare entitlements, the administration has been compelled to match the Republicans in gutting appropriated discretionary spending. True, the White House's proposed seven-year savings is smaller. Its cuts in the outyears, however, are as deep as the GOP's. The fact that so much of the administration's discretionary savings is backended (63 percent is to occur after the next three elections) leads one to surmise the cuts are never intended to happen. Still, if they are enacted, discretionary spending in 2002 under the White House plan would actually be slightly lower than under the GOP plan. Over the long run, this strategy is politicallyuand economicallyuunsustainable. By the mid-2020s, entitlement outlays under the administration budget would alone consume all federal revenues. Without borrowing, not a dime would be available for national defenseumuch less the domestic investment priorities the administration insists distinguish it from the GOP. Federal Outlays, Revenues, and Deficit as a Share of GDP, FY 1996-2030 1996 2002 2010 2020 2030 BASELINE Total Outlays 21.8 21.4 24.2 30.5 38.8 Discretionary 7.5 6.4 6.4 6.4 6.4 Entitlements 10.9 12.1 14.6 18.6 22.5 Net Interest 3.3 2.8 3.0 5.4 9.9 Revenues 19.4 19.1 19.1 19.1 19.1 Deficit -2.4 -2.3 -5.1 -11.4 -19.7 ADMINISTRATION Total Outlays 21.5 19.2 21.1 25.7 32.1 Discretionary 7.4 5.2 5.2 5.2 5.2 Entitlements 10.9 11.5 14.0 17.6 21.0 Net Interest 3.3 2.5 2.0 2.9 5.9 Revenues 19.4 19.2 19.2 19.2 19.2 Deficit -2.1 0.0 -1.9 -6.5 -12.9 CONGRESS Total Outlays 21.5 18.8 20.6 25.1 31.3 Discretionary 7.3 5.3 5.3 5.3 5.3 Entitlements 10.9 11.0 13.4 17.0 20.3 Net Interest 3.3 2.5 1.9 2.8 5.8 Revenues 19.3 18.8 18.8 18.8 18.8 Deficit -2.2 0.0 -1.8 -6.3 -12.5 A Check-Writing Machine? The Washington spin doctors are right that there are profound choices to be made on the budget. But they are wrong that we are now debating them. The most important choice of all is whether the federal government will be allowed to become a giant check-writing machine whose sole purpose is to transfer a rising share of middle-class worker income to middle-class retirees. Come the Baby Boom's retirement, if we haven't changed everyone's expectations starting now, either those workers will be crushed or those retirees will see the rug pulled out from under them at the last moment. Let's face it: The task of balancing the budget by 2002 is a low-impact warm up compared to the iron-man challenge ahead. Until our leaders face up to this, any talk of a revolution in government is a pretense -- and any promise of permanent budget balance a sham. * All projections in this alert follow the CBO through 2002; projections after 2002 are consistent with the CBO economic scenario and were prepared by Scott Nystrom using the long-term model developed by the Bipartisan Commission on Entitlement and Tax Reform. Note: All projections follow the CBO through 2002; projections after 2002 are consistent with the CBO economic scenario and were prepared by Scott Nystrom using the long-term model developed by the Bipartisan Commission on Entitlement and Tax Reform. Projections for the administration refer to its January 6 budget proposal; projections for Congress refer to its December 15 budget proposal.

FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Martha Phillips