Facing Facts Alert 13

Volume II, Number 1, January 19, 1996

Facing Facts Alert 13

The Truth about Entitlements and the Budget
A Fax Alert from The Concord Coalition
Volume II, Number 1, January 19, 1996


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

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
	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

	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

	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.


The Concord Coalition web pages were designed by Marla Parker and Krista Reymann. These pages are now maintained by Craig Cheslog. . Last updated: 24 Apr 1997