“Jump” into Deficit Reduction.
“What’s the sense of having a Republican administration and a Republican Senate if the best we can do is a $200 billion deficit?”
– Republican Senator Bill Armstrong, 1984
1984: the year of my birth, the Macintosh computer, Reagan’s 49-state reelection, and the classic rock anthem “Jump.” Twenty-eight years later, I’m a married man, Republican presidential candidates vie for Reagan’s mantle, and Van Halen has given way to Lady Gaga. And while the latest iPhone is 371% smaller than the original Mac and costs 1254% less, our nation’s deficit has ballooned 659%. Sen. Armstrong’s $200 billion frustration has metastasized to a $1.3 trillion threat.
As yearly deficits become soaring debt, interest payments become a larger portion of government spending. In 2011, taxpayers spent over $454 billion on interest towards the national debt. According to the Washington Post, in 2014 interest payments will surpass what America spends on education, transportation, and energy combined with all other discretionary spending. Deficits and debt can also have dire implications for the economy, including increased interest rates and lack of credit.
We face a big, complicated problem. Resolving the deficit crisis will mean addressing the tax system, agriculture subsidies, federal pay, defense spending, and more. Yet it’s clear that the most critical issue is entitlement spending.
The rising costs of America’s two largest spending programs, Medicare and Social Security, over the next 25 years will greatly expand the deficit and debt. Spending on these programs is projected to rise 5% in this time at a cost of an additional $750 billion annually. The costs of these entitlements continue to rise, reaching 18% of GDP by 2050. Alone, they account for 90% of the growth in government spending.
The unsustainable growth of entitlement spending is a bipartisan failure. Lawmakers from both parties have failed to address the foreseeable problems because voters have made reform the “third rail” of American politics.
Now is the time to advocate reforms that provide health insurance coverage for seniors and the poor and maintain an income safety net for retirees and the disabled without compromising America’s fiscal future. There’s plenty of debate among policy researchers about what specific combination of reforms will be most effective, but generally we are talking about altering the incentives driving consumer choices.
This means confronting complex questions. For example, a significant portion of Medicare spending occurs during the last year of life. About a quarter of the total budget is spent in that year, 40% of that in the last 30 days of life. In 1997, Medicare paid $26,000 per person in the last year of life, about six times the cost of other beneficiaries.
We can afford to ensure that the elderly and dying receive excellent care, but not by maintaining a system that incentivizes patients to request and physicians to perform expensive procedures in the last days of life. A friend of my family was stricken with pancreatic cancer that eventually invaded her brain, lungs, and bones. Ten days before she died, she received a hip replacement to remove the cancer discovered there. If patients were bearing these costs more directly, it is fair to ask whether different choices would be made. Premium support is one way to bring costs closer to patients that has been advanced by Republicans like Paul Ryan.
Another complexity: the CDC estimates the cost of healthcare spending related to obesity at $147 billion annually. How can we work together to create public policies that incentivize better habits?
The structure of Social Security is based on demographic trends from the Roosevelt era that no longer apply. In 1950 the average retirement age was 68 and average life expectancy was 71. In 2000 the average age of retirement was 62 and life expectancy was 79. That’s a 17-year increase in non-working years of retirees. Furthermore, in 1950 there were 16 workers contributing for every beneficiary; in 2000, the ratio was 3 to 1. These are two main reasons Social Security will be broke within 30 years.
The system was not designed or intended to subsidize such long retirements, especially for those still able to provide for themselves and contribute to society through work. Thanks to increases in technology and health services, and shifts in the nature of the American economy, Americans can – and should be expected to – work longer. Means-testing is an additional potentially beneficial reform.
The deficit can’t be ignored. It has consequences in both the near and long-term. Many economists argue that deficits impact long-term interest rates, which can hinder continued economic growth. When investors no longer consider a nation a sound investment, borrowing becomes difficult and chaos ensues, as has happened in Greece. Eventually, deficits must be paid. At the very least, deferred debt becomes an increasingly dire problem for future generations.
Surely we can agree that these basic facts are not good. May the Alternative Political Conversation spark Christians to lead the way in advocating a bipartisan solution to entitlement reform and, in so doing, positively affect America’s broader fiscal future.
Mr. Teetsel,
Thank you for your contribution to this discussion. Each of the regular commentators acknowledges the need for serious entitlement reform, and a few elevate it to a top priority like you do. But, I have a technical question with respect to the apparent discrepancy between your claim that “Resolving the deficit crisis will mean addressing the tax system, agriculture subsidies, federal pay, defense spending, and more. Yet it’s clear that the most critical issue is entitlement spending….Alone, [Medicare & Social Security] account for 90% of the growth in government spending.” Yet, Lisa Sharon Harper stated in her essay, “According to the non-partisan Center on Budget and Policy Priorities Bush-era tax cuts will be the single largest contributor to America’s long-term debt within seven years. When we add the residual costs of the Iraq and Afghanistan wars, together these two expenses will account for half of the entire U.S. Public Debt (measured as a share of the economy).”
As a Christian, I accept and am prepared to support certain cuts to government benefits and services in this fiscal environment, even those geared toward the poor, but not if those cuts are implemented while certain kinds of “corporate welfare” or excessive defense spending are left relatively untouched. I am, therefore, sympathetic to those who have great frustration with the prospect that oil or agricultural subsidies might stay in place while food assistance programs or foreign anti-AIDS programs are on the chopping block. But, the differences between your description of our fiscal challenges and that of Ms. Harper have little, if anything, to do with these kinds of tradeoffs. Your assertion about the sources of our medium and long-term fiscal crises and that of Ms. Harper appear to me to be so diametrically opposed that I hoped you might provide insight as to why. Essentially, if we can’t commonly describe the main sources of the problem we will have a really difficult time coming together to seek solutions. It may be that you and Lisa are speaking about two very different aspects of the same problem and that my limited understanding at this point precludes me from comprehending the differences.
So I ask, how is it possible that entitlement spending is clearly the most critical issue (and you site that it will account for 90% of the growth in government spending) and yet the “Bush-era tax cuts will be the single largest contributor to America’s long-term debt within seven years”?
Thank you again for your essay.
Mr. Teetsel,
Thank you for your contribution to this discussion. Each of the regular commentators acknowledges the need for serious entitlement reform, and a few elevate it to a top priority like you do. But, I have a technical question with respect to the apparent discrepancy between your claim that “Resolving the deficit crisis will mean addressing the tax system, agriculture subsidies, federal pay, defense spending, and more. Yet it’s clear that the most critical issue is entitlement spending….Alone, [Medicare & Social Security] account for 90% of the growth in government spending.” Yet, Lisa Sharon Harper stated in her essay, “According to the non-partisan Center on Budget and Policy Priorities Bush-era tax cuts will be the single largest contributor to America’s long-term debt within seven years. When we add the residual costs of the Iraq and Afghanistan wars, together these two expenses will account for half of the entire U.S. Public Debt (measured as a share of the economy).”
As a Christian, I accept and am prepared to support certain cuts to government benefits and services in this fiscal environment, even those geared toward the poor, but not if those cuts are implemented while certain kinds of “corporate welfare” or excessive defense spending are left relatively untouched. I am, therefore, sympathetic to those who have great frustration with the prospect that oil or agricultural subsidies might stay in place while food assistance programs or foreign anti-AIDS programs are on the chopping block. But, the differences between your description of our fiscal challenges and that of Ms. Harper have little, if anything, to do with these kinds of tradeoffs. Your assertion about the sources of our medium and long-term fiscal crises and that of Ms. Harper appear to me to be so diametrically opposed that I hoped you might provide insight as to why. Essentially, if we can’t commonly describe the main sources of the problem we will have a really difficult time coming together to seek solutions. It may be that you and Lisa are speaking about two very different aspects of the same problem and that my limited understanding at this point precludes me from comprehending the differences.
So I ask, how is it possible that entitlement spending is clearly the most critical issue (and you site that it will account for 90% of the growth in government spending) and yet the “Bush-era tax cuts will be the single largest contributor to America’s long-term debt within seven years”?
Thank you again for your essay.
Mr. Teetsel,
Thank you for your contribution to this discussion. Each of the regular commentators acknowledges the need for serious entitlement reform, and a few elevate it to a top priority like you do. But, I have a technical question with respect to the apparent discrepancy between your claim that “Resolving the deficit crisis will mean addressing the tax system, agriculture subsidies, federal pay, defense spending, and more. Yet it’s clear that the most critical issue is entitlement spending….Alone, [Medicare & Social Security] account for 90% of the growth in government spending.” Yet, Lisa Sharon Harper stated in her essay, “According to the non-partisan Center on Budget and Policy Priorities Bush-era tax cuts will be the single largest contributor to America’s long-term debt within seven years. When we add the residual costs of the Iraq and Afghanistan wars, together these two expenses will account for half of the entire U.S. Public Debt (measured as a share of the economy).”
As a Christian, I accept and am prepared to support certain cuts to government benefits and services in this fiscal environment, even those geared toward the poor, but not if those cuts are implemented while certain kinds of “corporate welfare” or excessive defense spending are left relatively untouched. I am, therefore, sympathetic to those who have great frustration with the prospect that oil or agricultural subsidies might stay in place while food assistance programs or foreign anti-AIDS programs are on the chopping block. But, the differences between your description of our fiscal challenges and that of Ms. Harper have little, if anything, to do with these kinds of tradeoffs. Your assertion about the sources of our medium and long-term fiscal crises and that of Ms. Harper appear to me to be so diametrically opposed that I hoped you might provide insight as to why. Essentially, if we can’t commonly describe the main sources of the problem we will have a really difficult time coming together to seek solutions. It may be that you and Lisa are speaking about two very different aspects of the same problem and that my limited understanding at this point precludes me from comprehending the differences.
So I ask, how is it possible that entitlement spending is clearly the most critical issue (and you site that it will account for 90% of the growth in government spending) and yet the “Bush-era tax cuts will be the single largest contributor to America’s long-term debt within seven years”?
Thank you again for your essay.
Nathan,
Thank you for your thoughtful question. The difference between my argument and Ms. Harper's is stark, isn't it? Debunking her claims about the Bush tax credits is simple enough. I suggest you also ask her to defend her comments with data.
From 1945 to 2010 the average ratio of federal tax revenues to GDP is 17.8%. The ratio of federal spending to GDP is 20%. Hence, America's long history of deficits and debt.
What was the affect of the so-called "Bush tax cut" of 2003? Between 2004-and 2008 GDP-to-tax was 17.5%, slightly below the long-term average. Spending during this time averaged 20%, same as the historical norm.
What about under President Obama? During 2009 and 2010 GDP-to-tax ratio was just 14.9%. What accounts for the major drop? Tax cuts.
During the same two-year period, federal spending-to-GDP has averaged 24.4%. A huge increase. In fact, it's the largest percentage since WWII.
There you have it. A drop in revenue and a rise in spending equals an exploding deficit.
My numbers are here: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=200&Topic2id=20&Topic3id=23
Nathan,
Thank you for your thoughtful question. The difference between my argument and Ms. Harper's is stark, isn't it? Debunking her claims about the Bush tax credits is simple enough. I suggest you also ask her to defend her comments with data.
From 1945 to 2010 the average ratio of federal tax revenues to GDP is 17.8%. The ratio of federal spending to GDP is 20%. Hence, America's long history of deficits and debt.
What was the affect of the so-called "Bush tax cut" of 2003? Between 2004-and 2008 GDP-to-tax was 17.5%, slightly below the long-term average. Spending during this time averaged 20%, same as the historical norm.
What about under President Obama? During 2009 and 2010 GDP-to-tax ratio was just 14.9%. What accounts for the major drop? Tax cuts.
During the same two-year period, federal spending-to-GDP has averaged 24.4%. A huge increase. In fact, it's the largest percentage since WWII.
There you have it. A drop in revenue and a rise in spending equals an exploding deficit.
My numbers are here: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=200&Topic2id=20&Topic3id=23
Nathan,
Thank you for your thoughtful question. The difference between my argument and Ms. Harper's is stark, isn't it? Debunking her claims about the Bush tax credits is simple enough. I suggest you also ask her to defend her comments with data.
From 1945 to 2010 the average ratio of federal tax revenues to GDP is 17.8%. The ratio of federal spending to GDP is 20%. Hence, America's long history of deficits and debt.
What was the affect of the so-called "Bush tax cut" of 2003? Between 2004-and 2008 GDP-to-tax was 17.5%, slightly below the long-term average. Spending during this time averaged 20%, same as the historical norm.
What about under President Obama? During 2009 and 2010 GDP-to-tax ratio was just 14.9%. What accounts for the major drop? Tax cuts.
During the same two-year period, federal spending-to-GDP has averaged 24.4%. A huge increase. In fact, it's the largest percentage since WWII.
There you have it. A drop in revenue and a rise in spending equals an exploding deficit.
My numbers are here: http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?DocID=200&Topic2id=20&Topic3id=23