Foolish, indiscriminate and badly timed cuts in the federal budget have begun. The primary reason is that Republicans have refused to budge any further on taxes. Still, Democrats must share some of the blame. By failing to propose more specific cuts to entitlement spending, they have forfeited the high ground and allowed a small but critical set of programs to absorb all of the pain.
The “sequester” is just the latest chapter in the muddled thinking that has characterized the story of the federal budget for the past several years. Alarmists who call for immediate spending cuts and immediate reductions in our debt-to-GDP ratio (now at 73 percent) overstate the dangers of current levels of spending and debt, and they understate the damage to employment and economic growth that results from recently enacted belt-tightening. That tightening, including the effects of provisions enacted in both 2011 and 2013, is expected to halve the growth rate in the gross domestic product this year, according to the Congressional Budget Office.
This self-inflicted wound to the economy and to jobs makes no sense. If anything, we should be using this period, when workers are underemployed and firms’ physical plant and financial resources are underutilized, to improve productivity by investing more in infrastructure and job training.
At the same time, those who argue that we can put off any serious discussion of debt reduction for a number of years — because of the temporarily stable debt-to-GDP ratio projected for 2015 to 2022 — understate the dangers that loom just beyond this period. The aging population and the growth of health-care costs make enacting reforms to entitlements imperative. Enacting them now would help the economy by reducing uncertainty. This would also instill more confidence in government, give people time to adjust and release the pressure on the small portion of the budget that so far has absorbed virtually all of the cuts.
The reluctance of our fellow progressives to consider sensible reforms to entitlement programs is puzzling. None of us wants to impose new burdens on vulnerable seniors or those who are about to retire. But any new provisions can be phased in gradually and structured in a way that protects the oldest and most fragile members of the population in addition to those with limited incomes.
With these caveats, progressives must begin to acknowledge a hard fact: Our very expensive retirement programs already crowd out public spending on virtually all other priorities — including programs for the poor and those that strengthen the nation’s future — and will do so at even higher rates in the next decade and beyond unless we reform these large programs.
Social Security and Medicare alone cost the federal government about $1.3 trillion last year, accounting for more than 37 percent of federal spending; they are slated, along with interest on the debt, to absorb virtually all currently projected federal revenue within the next several decades. In contrast, all nondefense discretionary spending — which includes outlays on education, job training, transportation, public safety, research and many other growth-enhancing programs — amounted to only 17 percent of the budget, and they will continue shrinking each year.
Given that Americans have always resisted paying high taxes — and we see little sign of that viewpoint changing — what will happen to other priorities as our spending on retirement programs soars? Even if revenue rises, how can we possibly begin to fund the investments — in early-childhood health and education programs, K-12 reforms, effective workforce policies, improvements to crumbling infrastructure and the advancement of science — that are so badly needed to generate broadly shared economic growth? For how long will we continue to sacrifice investments in our nation’s children and youth, as well as its future productivity, to spend more and more on the aged?
Harry J. Holzer
Nonresident Senior Fellow - Economic Studies
John LaFarge Professor of Public Policy, Georgetown University
Our preference is to restructure the delivery of health care so that it delivers the same benefits in less costly ways. Growth in health-care costs has slowed over the past few years, and the Affordable Care Act may bring further progress. But such changes are likely to be insufficient, requiring some restrictions on eligibility or expenditures. Asking affluent seniors to pay more for their benefits would be a good place to start.
If the issues are fairness and growth, not the size of government per se, then the right thing to do is to ask the affluent to pay more. Cutting programs aimed at providing a way up the ladder for the young and the poor, and doing so at a time when the economy is weak, is just plain dumb.