“Do we really believe that the wealthiest Americans need to take from younger, hard-working Americans to receive what, for most of them, is a modest monthly Social Security check?”
New Jersey governor and putative Republican presidential candidate Chris Christie will deliver a speech in New Hampshire today in which he will set out, according to his aides, a “detailed proposal to address our long-term entitlements crisis.” The speech may or may not jump start Christie’s stalled presidential campaign, but if it forces other candidates to address the issue, he will have already done the country an enormous favor.
The national debt has dropped out of the headlines recently, in part because the deficit has been declining. It was just six years ago that the federal budget deficit topped $1.4 trillion. This year, the Congressional Budget Office projects it will be just $486 billion.
But the reprieve is purely temporary. Starting as early as next year, the deficit will begin to rise once more. Within a decade, we will again experience annual shortfalls of $1 trillion or more.
All this profligacy adds up. If rising annual budget deficits represent year-to-year fiscal irresponsibility, the cumulative total of that irresponsibility is the federal debt, which has now reached almost $18.2 trillion. By 2025, the debt is expected to approach $27 trillion. After that it only gets worse.
Driving this debt is the massive growth of entitlement spending. Thanks in large part to sequestration, both defense and domestic discretionary spending are down. Domestic discretionary spending, in fact, accounts for just 15 percent of all federal spending. That represents just 3 percent of GDP, a historic low.
The simple truth is that there is no way to address America’s debt problem without reforming entitlements, notably Social Security, Medicare, Medicaid, and our newest entitlement program, Obamacare. Social Security, Medicare, and Medicaid alone account for 46 percent of federal spending today, a portion that will only grow larger in the future. And while the spending for Obamacare has just begun, it too will soon consume an ever larger portion of the federal budget.
Social Security will run a $69 billion cash-flow deficit this year, a shortfall that will grow every year into the future. Altogether, Social Security is facing future shortfalls worth almost $25 trillion. The so-called Trust Fund is simply an accounting measure, specifying how much money the federal government owes the program out of general revenues, not an actual asset than can be used to pay benefits. At the same time, Social Security taxes are already so high that most young people will receive a rate of return far below historic market returns.
Medicare is in even worse financial shape. Even under the most optimistic scenarios, Medicare’s future shortfall will approach $48 trillion. And if health inflation returns to previous levels, Medicare’s long-term costs could be far higher.
Medicaid’s financial problems are measured somewhat differently since the federal portion is funded entirely from general revenues. Nonetheless, the program will cost the federal governments almost $350 billion this year, and an additional $150 billion at the state level. Moreover, program costs are rising rapidly. Federal Medicaid costs are estimated more than double to $576 billion by 2025.
If one took a proper accounting of America’s unfunded entitlement liabilities, our real debt is not $18 trillion, but an astounding $90.5 trillion. That’s getting uncomfortably close to our being Greece.
Yet so far, Republicans have been surprisingly muted on the issue. Rand Paul has offered a five-year balanced-budget plan. Marco Rubio has written about Social Security reform. Jeb Bush has called for raising the retirement age and means-testing programs. Ted Cruz supports personal accounts for Social Security and raising the eligibility age for Medicare. And Scott Walker says vaguely that “long term, there’s got to be some sort of entitlement reform.” But no one yet has stepped up to make the issue their own.
Christie first came to national prominence because of his willingness to stand up to the public-employee unions and demand reforms to New Jersey state pensions. Reforming entitlements will take a similar willingness to fight powerful special interests. That makes it a natural fit for the pugnacious New Jersey governor and his blunt speaking style.
But it is also a crucial issue for the future of our country, one that all the candidates should be talking about a lot more. If Christie’s speech is the opening salvo in a national debate about how to stem the coming tsunami of red ink, our children and grandchildren will thank him — no matter what it means for his political future.
Michael Tanner is a senior fellow at the Cato Institute.