America’s Looming Entitlement Disaster

After billions in stimulus spending and bailing out banks and automakers, America's public finances are in dire straits. Last year, the federal deficit reached almost $1.5 trillion while the debt has grown to $14 trillion, equaling the total annual economic output of the United States. Americans may need to brace for austerity but plans to rein in spending are few and controversial.

Republicans have pledged austerity in the new Congress. Several incoming Tea Party conservatives have promised to cut spending by up to $100 billion but this would not solve the country's budget woes for the long term. Entitlements, which account for approximately a third of federal spending and will likely swallow up half of the budget by the end of this decade, have to be abolished or reformed in order to restore fiscal balance. But neither party likes to take away benefits from low income families and seniors.

That is not to say that lawmakers don't recognize the problems. According to Republican Congressman Phil Gingrey of Georgia, thirty-eight states across the country are already taking funds from other programs, including education, to continue to pay for Medicaid. On the Fox Business Channel last month, he lambasted the Democrats' health care reform bill which prohibits states from making any changes to Medicaid for the next three years. "In 2014," he added, "every state has to cover individuals up to a 138 percent of the federal poverty level." Currently only Americans with incomes below the poverty line are eligible for health care benefits.

Another congressman who has warned against runaway entitlement spending for many months is Wisconsinite Paul Ryan. He expressed concern in February of last year about Americans being "more worried about their material support from goverment than they are about their own liberties." Many lawmakers in Washington believe that it is their job not merely to equalize opportunity, but to equalize the outcomes of peoples' lives, he said. "The more we ask government to do for us," Ryan warned, "the more government can take from us."

Ryan has designed deep spending cuts and entitlement reform, including a privatization of Social Security for those who are under the age of 55. Medicare would be similarly dismantaled if Ryan had his way. Current recipients and those enrolling over the next ten years could continue to enjoy today's program whereas in 2021, the system should become voucher based for new recipients.

On NBC's Meet the Press last November former Federal Reserve chairman Alan Greenspan expressed support for Ryan's plans, noting that with government borrowing over a third of what it spends, to find spending cuts, lawmakers have to look for "not individual, piecemeal cuts or taxes," but reconsider whole programs instead.

As incoming chairman of the House budget committee, Ryan will be at the helm of trimming federal expenditures for the next two years. Democrats, who maintain a majority in the Senate, have already announced that they will "protect" public pensions against reform efforts however.

When the chairmen of the president's debt commission released their recommendations last November, then Speaker Nancy Pelosi professed that entitlement reform "must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare." The president himself has pledged to preserve Social Security "forever". He denounced privatization as "an ill conceived idea that would add trillions of dollars to our budget deficit while tying [people's] benefits to the whims of Wall Street traders and the ups and downs of the stock market."

Raising the retirement age by one month every two years after it reaches 67 under current law would achieve nearly $4 trillion in deficit reduction through 2020, according to the debt commission. The pension age would reach 68 around 2050 and 69 by 2075. But even under those circumstances, Social Security remains a "Ponzi scheme," said Texas Governor Rick Perry in an interview with Newsweek. He advised congressmen who aren't willing to cut spending to "just go home."

With Democrats adamantly opposed to entitlement reform and Republicans similarly hostile toward the notion of cutting defense spending, there wouldn't seem to be much reason to assume that Washington will be able to avert the looming entitlement crisis.

Originally published at the Atlantic Sentinel, January 7, 2011.

Debt Commission Proposes Deep Budget Cuts

Members of the president's debt commission have proposed deep budget cuts in order to rein in government spending in the United States. Entitlement programs as Medicare and Social Security, which are responsible for the brunt of federal spending, would be hit especially hard.

The National Commission on Fiscal Responsibility and Reform, created by President Barack Obama in January of this year, was not supposed to release its recommendations for several weeks yet. Its two chairmen however, former Republican Senator Alan Simpson and Democrat Erskine Bowles, who was President Bill Clinton's White House chief of staff in the 1990s, came out with proposals this week already. They have stressed that theirs are personal recommendations, not the findings of the commission as such which includes eighteen members in total, among them Congressman Paul Ryan of Wisconsin who has previously proposed entitlement reform in order to balance the federal budget. Partisan deadlock may have compelled the chairmen to publish their own ideas after almost ten months of discussion.

Although the president has promised to preserve Social Security "forever", describing privatization as "an ill conceived idea that would add trillions of dollars to our budget deficit while tying your benefits to the whims of Wall Street traders and the ups and downs of the stock market," America's pension system is in dire need of reform. Medicare as well as Social Security will bankrupt without intervention.

In order to save the programs and achieve "nearly $4 trillion in deficit reduction through 2020" while reducing the deficit to just over 2 percent of GDP by 2015, the chairmen of the debt commission, in a draft put out by them Wednesday, suggest to raise the retirement age by one month every two years after it reaches 67 under current law. The retirement age would then reach 68 around 2050 and 69 by 2075. There would be a "hardship exemption" however for those unable to work beyond the age of 62. Other proposals include:

• Granting retirees the choice of collecting half of their benefits early and the other half at a later age to support phased retirement options;
• Asking doctors and other health care providers to slow the increase in health care costs;
• Reducing farm subsidies by $3 billion a year;
• Freezing federal salaries and government employee bonuses;
• Eliminating congressional earmarks

Several of the Democrats who sit on the commission have already voiced their opposition to these supposedly radical proposals. They warn that there will be no fourteen vote majority for many of these notions.

Several dozen of Democratic legislators immediately released a joint statement after the commission chairmen released their findings, urging the president to protect Social Security. "If any of the commission's recommendations cut or diminish Social Security in any way, we will stand firmly against them," they have pledged.

Democrat Raúl Grijalva of Arizona, who is considered one of the most liberal of congressman, complained that "we have waited through nine months of backroom negotiations only to be told that the American people will have to tighten their belts another notch while defense spending continues to grow and corporate bonuses continue to expand." Congress should have a "realistic, productive conversation" about deficit reduction, he believes. "Instead, we're debating a proposal from a commission dedicated to cutting crucial social programs and reducing corporate and upper income taxes at the same time."

The commission chairmen have proposed to reduce income tax rates but attest that the losses in revenue can be offset by closing tax loopholes and eliminating scores of tax deductions which currently make the US tax code incredibly complicated.

According to Speaker of the House Nancy Pelosi, who will lose her job next year since Republicans regained control of the lower chamber of Congress in this November's midterm elections, pension reform as considered by the commission is utterly unacceptable. "Any final proposal from the commission," she has declared, "must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare."

Conservatives on the commission, including Paul Ryan, have cautiously praised the chairmen for their suggestions. Although Republicans are divided on entitlement and earmark reform, fiscal hawks as Ryan would rather reform be more comprehensive. His "Roadmap for America's Future," which is a detailed plan to restore balance to the federal budget, represents, as then Office of Management and Budget Director Peter Orszag put it in February of this year, a "dramatically different approach in which much more risk is loaded onto individuals." Congressman Jeb Hensarling of Texas and Senator Tom Coburn of Oklahoma are also renowned for their opposition to deficit spending but the other five Republican members of the commission may be more inclined to compromise. They have all spoken out against raising taxes however.

At a press conference Wednesday afternoon the two commission chairmen acknowledged the difficulty of reforming entitlement programs, something that has long been anathema to lawmakers from both sides. "We'll both be in a witness protection program when this is all over," joked Simpson. Bowles added that they weren't asking anyone to vote for their plan. "This is a starting point," he explained.

Originally published at the Atlantic Sentinel, November 10, 2010.

Does the GOP Support Privatizing Social Security?

A recent headline at The Huffington Post tells us that "GOP Candidates Endorse Draconian Proposal To Cut Social Security," referring to Congressman Paul Ryan's "Roadmap for America's Future" which includes plans to privatize America's expensive government pension scheme.

But if we click through to read the article in question, it turns out there's just four Republicans currently running for Congress who've embraced the notion that Social Security, as it is, is unaffordable and that allowing a healthy bit of a free market competition in the area may be the best way out. That's four out of hundreds of Republicans running for political office throughout the country, with not a single high ranking party member having formally endorsed the plan.

It's not too surprising. While many lawmakers on the Republican side are right to stress that the Federal Government's ongoing spending spree is unsustainable and bound to drown future generations in debt, few have dared propose radical measures to cut spending, particularly when it comes to the entitlements many Americans have come to take for granted. No matter the fearmongering on the left, it doesn't seem likely that Republicans will actually go ahead and privatize Social Security if they have the chance. Ryan, so far, has been quite alone in his campaign for limited government.

Paul Ryan Making Sense, As Usual

Just in case you missed this, it's from March. Probably the smartest congressman alive.