Bipartisan Commission on Entitlement and Tax Reform: 20th Anniversary Perspectives

Former U.S. Senator and Concord Coalition Co-Chair Bob Kerrey and former U.S. Senator Jack Danforth have updated their findings from their 1994 commission on entitlement and tax reform, and found that even after two decades, "current trends are not sustainable." The full report, which was developed with assistance from The Concord Coalition, can be found here. A video of the program featuring the former Senators releasing the updated report can be viewed here. Below is an op-ed both Senators wrote for The Washington Post discussing the continued need for entitlement and tax reform, and from the report, a Call To Action for a new generation of leaders to address the long-term fiscal challenges facing the nation. 

A lot can happen in 20 years. And yet sometimes you look back and find that for all the apparent change, you are not very far from where you started.

We have had that feeling lately as we look back on the work we did as co-chairs of the 1994 Bipartisan Commission on Entitlement and Tax Reform. In August of that year, our commission issued an interim report. Thirty of the 32 members agreed that “current trends are not sustainable.”

Much has changed since then. Yet in Washington, one thing remains the same: Current trends are unsustainable.

The numbers have changed, of course. In fact, some of the changes have been positive, particularly the projections for health-care spending and interest on the debt. For the next few years at least, the debt is projected to remain relatively stable as a share of the economy. 

Unfortunately, that is not the end of the story.

We still have a structural mismatch between entitlement promises and revenue. An aging population and rising health-care costs, the basic dynamics that we warned about, remain a threat to fiscal stability.

Meanwhile, the passage of time, the failure to take more ambitious actions and the enactment of new obligations have combined to limit our choices and placed the government in a more difficult position to address the challenges than it was in 20 years ago.

The debt burden has grown sharply. Debt held by the public has gone from 48 percent of gross domestic product in 1994 to 74 percent in 2014. This limits our fiscal flexibility and constrains the policy choices of future generations.

Demographics are working against us. The baby boom generation, which was coming into its peak earning years when we were on the commission, has begun to retire, slowing potential economic growth, lowering potential revenue and increasing spending on retirement and health-care benefits.

Social Security, which still had many years of positive cash flows ahead of it in 1994, has begun to run cash deficits. With each passing year, the cumulative gap that must be closed grows wider, and the Disability Insurance Trust Fund is projected to run dry before the next president takes office.

Government health-care benefits have been expanded with a Medicare prescription drug benefit (Part D), wider eligibility for Medicaid and new health-insurance subsidies. Discretionary spending has been capped at its lowest level in more than 50 years, making further savings from this category improbable. Simply maintaining the current caps will be an onerous challenge. Income-tax rates have been cut for most households, and the revenue drain from “tax expenditures” has increased.

Even the good news on interest costs and health care comes with some major caveats.

Interest on the debt has grown more slowly than we projected, primarily because deficits were not as high as forecast in the early years, and interest rates in recent years have been unusually low due to the economic slowdown. As deficits begin to rise again and interest rates return to more traditional levels, however, the cost of servicing our higher debt will become the fastest-growing category of the budget. The prospect of spiraling interest costs has merely been postponed, not eliminated.

Health-care cost growth has moderated considerably in recent years, and this development is now programmed into the long-term projections by both the Congressional Budget Office and the Medicare trustees. However, the extent to which this slower growth will persist is highly uncertain. If the recent decrease in per person costs proves to be temporary, as some analysts believe, the expense of providing benefits could rise much higher than projected.

Moreover, the favorable long-term projections depend in part upon the success of cost-control strategies in the Affordable Care Act that have yet to be fully implemented or tested. The Medicare chief actuary has warned that some of the assumed savings may not be feasible over the long term.

Buying time through incremental change has also left in place a dynamic that is transforming the federal budget into little more than an automated process of writing checks to individuals. Such transfer payments have grown from 56 percent of the budget in 1994 to 70 percent in 2014.

Federal investment spending has continued a decline that began before our report. According to the Office of Management and Budget, federal spending on major investment programs is now 2.7 percent of GDP and 12.8 percent of the budget — both historic lows. Forty years ago, those numbers were 4.1 percent of GDP and 22.7 percent of the budget.

We’re placing a growing burden on future workers and investing less in the economy that will be called upon to support that burden.

And this generationally irresponsible pattern will continue, absent major changes that alter the long-term trends rather than simply postpone a crisis.

We still believe that such changes can happen. For the sake of a stronger economy for future generations, they must. But the clock is ticking, and these issues have largely been ignored on the campaign trail this fall. We can’t wait another 20 years.

A Call to Action For a New Generation of Fiscal Leaders

In our introduction to the August 1994 Bipartisan Commission on Entitlement and Tax Reform Interim Report, we said:

The message of this Report is simple, yet disturbing. America is at a fiscal crossroads -- if we act, we can help ensure continued growth and prosperity, but if we fail to act, we threaten the financial future of our children and  our  Nation.  This  Report demands action. If the country does not respond, Americans 10, 15, and 20 years from now will ask why we had so little foresight.

Twenty years have passed and the American people have a right to ask that question. Why has there been so little action? There is no good answer. So we are issuing this updated version of the Kerrey-Danforth Interim Report, not as a retrospective account of fiscal changes since 1994 or even as a simple reminder of unfinished business. We do it as a challenge to a new generation of fiscal leaders:

Take up this cause. Do what our generation of leaders has failed to do. Solve this problem.

As a first crucial step, we urge the new Congress, President Obama, and everyone who is already testing out a 2016 presidential run to embrace the seven bipartisan findings of our original report as the framework for their fiscal policy proposals.

Those findings, all still valid:

1. To ensure that today’s debt and spending commitments do not unfairly burden America’s children, the government must act now. A bipartisan coalition of Congress, led by the President, must resolve the long-term imbalance between the government’s entitlement promises and the funds it will have available to pay for them.

2. To ensure the level of private investment necessary for long-term economic growth and prosperity, national savings must be raised substantially.

3. To ensure that funds are available for essential and appropriate government programs, the nation cannot continue to allow entitlements to consume a rapidly increasing share of the federal budget.

4. To be effective, any attempt to control long-term entitlement growth must take into account the projected increases in health care costs.

5. To be effective, any attempt to control long-term entitlement growth must also take into account fundamental demographic changes.

6. To respond to the Medicare Trustees’ call to action and ensure Medicare’s long- term viability, spending and revenues available for the program must be brought into long-term balance.

7. To respond to the Social Security Trustees’ call to action and ensure the long-term viability of Social Security, spending and revenues available for the program must be brought into long-term balance. Any savings that result should be used to restore the long-term soundness of the Social Security Trust Fund.

These findings laid out a road map for the issues that must be confronted. They achieved overwhelming bipartisan consensus on the nature and magnitude of the fiscal problem. They remain accurate -- and widely ignored by our political leaders.

With substantial challenges facing the new Congress, now is a critical time to re- establish the validity and value of that consensus.

And because the work of putting our nation’s budget on a sustainable path will likely extend beyond the next two years, it is particularly critical for the 2016 presidential candidates in both parties to prominently and candidly address these issues. To them, our message is simple: Don't duck the debt. Your campaign promises for reviving the economy, strengthening national defense, improving the social safety net or reducing the tax burden will ring hollow if they count on an escalating and unsustainable infusion of borrowed money. We do not seek pledges. There have been far too many of those. We seek solutions.

“Repeal Obamacare” and “Tax the Rich” are slogans, not solutions.

Candidates should tell the American people how they would deal with each of the seven problems identified in the findings of our bipartisan commission.

If candidates have objections to our findings, let them explain those objections.

If they support the Do Nothing Plan, let them declare so publicly and own the consequences. 

In any event, we must move beyond tired partisan talking points. 

We understand that Democrats and Republicans will have differing views on how these issues should be addressed. But resolving those differences is what the legislative process is all about. Let there be no doubt that we still have fundamental problems and that they must be addressed sooner rather than later.

Twenty years of procrastination is enough.