Hood column: Reason to be grumpy about fiscal future
RALEIGH ó The national party conventions are over, the polls are bouncing, the candidates are racing down the homestretch, and I'm grumpy.
As a grumpy think tanker, I'm not alone. Back in April, an unlikely coalition of Washington policy nerds called the Brookings-Heritage Fiscal Seminar released a sobering document entitled "Taking Back Our Fiscal Future." The authors spanned the ideological spectrum, including fiscal analysts from the right (Heritage Foundation & American Enterprise Institute), the left (Urban Institute and Brookings Institution), and the center (Concord Coalition and New America Foundation). The upshot was that this year's political candidates aren't saying much about the biggest domestic problem facing America: exploding entitlement expenditures.
"When the next president and Congress take office in January 2009," the seminar participants observed, "they will face one crucial question that has been largely absent from the current election campaign: how to narrow significantly the enormous gap between projected federal spending and revenues." With Social Security, Medicare and Medicaid spending largely on autopilot, and slated to dominate the federal budget in the not-too-distant future, the ability of any politician to address other domestic priorities will be severely constrained.
Think that the United States has inadequate and deteriorating infrastructure in need of modernization? You're right, but prospects for more investment are dimming. Think that major tax increases to finance skyrocketing entitlement benefits will discourage entrepreneurship and capital formation while squeezing household budgets? You're also right, but the longer policymakers wait to take action in Washington, the more likely these tax increases become.
The Bush administration didn't help matters with its overspending and the addition of Medicare Part D. Earlier, the Clinton administration missed an opportunity to enact significant entitlement reforms during the 1990s.
In their paper, the Brookings-Heritage folks exploded some of the myths sometimes voiced on the Right or Left to downplay this long-term fiscal crisis. Although pro-growth policies, restraint in discretionary spending, and health-care reform could ameliorate future deficits a bit, they won't eliminate them. Tax hikes could reduce the deficits a bit, too, but both accounting and economic realities intrude.
I might add that burgeoning entitlements don't just pose fiscal challenges. They also signal a troubling change in familial and social relationships. Seniors ought to be cared for primarily by their families and communities, not by impersonal federal programs that transfer dollars from those who don't have older living relatives to those who do. Compassion across generations has been one of the basic responsibilities of families throughout human history, and can't be shoved aside without consequences.
Of course, many Americans have made life-altering decisions on the basis of the promise of perpetual Social Security benefits, full Medicare coverage and Medicaid financing of nursing-home care. Sudden, wrenching changes would be unfair and impossible. The Brookings-Heritage think tankers make no such proposal. Instead, they recommend that the next president and Congress begin to focus federal policy on fiscal reality in several ways:
- Enacting explicit long-term budgets for Social Security, Medicare and Medicaid that are sustainable, limit future increases, and require congressional review every five years.
- Including triggers in those five-year views that require automatic benefit cuts or revenue hikes to keep the programs in actuarial balance. Only an explicit congressional vote could block the automatic adjustments.
- Blocking any future increases in entitlement benefits without explicit, offsetting reductions in other benefits or increases in revenue.
Beyond these general principles, the Right-Left-Center coalition outlines some specific ideas that could be part of a broad-based entitlement reform, including progressive indexing and other means-testing methods, mandatory personal savings accounts, changing the tax treatment of benefits, encouraging private long-term care insurance to reduce reliance on Medicaid, and replacing payroll-tax financing with some other federal tax levy.
I want to hear more specifics from Barack Obama, John McCain, and other candidates for federal office about how they would approach entitlement reform. I'll probably be disappointed, hence the grumpiness.- - -
John Hood is president of the John Locke Foundation.