The Sure Path to American Decline

November 6, 2013 Topic: Economics Region: United States

The Sure Path to American Decline

Entitlement spending could crowd out everything else if it's not prudently reformed.

This fall, twenty-nine House and Senate members convene for the first budget conference in more than four years. Their charge is to develop—by December 13—a budget plan that will gain the support of a majority of lawmakers.

It doesn’t sound too difficult. But there’s an elephant in the room few lawmakers are willing to acknowledge, let alone address.

An agreement to go to conference was pretty much the only thing Congress accomplished when it ended the third longest shutdown in U.S. history and suspended the debt limit on Oct. 16. A budget conference sets up a process for members of both chambers of Congress to reconcile differences between their respective spending plans. But the process only works if lawmakers want it to.

In the past, lawmakers often found agreement by trading a little more spending in one area for a little more spending in another. Earmarks were one form of this common practice.

Lawmakers have much less experience governing during a period of spending cuts and deficit reduction. Ergo, we have congressional gridlock. And, for the first time since the 1950s, federal spending has fallen for two consecutive years—in part due to the 2011 Budget Control Act spending caps and sequestration.

The Great Recession of 2008-09 rang in a new era focused on the size and scope of the federal budget—a debate which will continue to rage in Washington for years to come. In 2007, deficits were at manageable levels and the Congressional Budget Office even projected modest surpluses from 2012 to 2016. Everything changed when the U.S economy crashed in 2008.

Job losses and a drop in personal income led many more Americans to rely at least temporarily on government programs to make ends meet. The faltering economy dragged down tax revenues for several years. And the crisis became the impetus for an $800 billion stimulus package.

By 2009, the annual deficit hit $1.4 trillion, consuming nearly one-tenth of gross domestic product (GDP). The prospect of surpluses within 10 years evaporated. By 2013, public debt doubled to more than 73 percent of GDP, from a far healthier 36 percent in 2007. Much to the dismay of President Barack Obama, the budget crisis rose to the top of the national agenda.

But the worst is yet to come: The Congressional Budget Office projects that public debt will reach an economy-crushing 100 percent in less than one generation. Unlike the unpredicted drop in U.S. fiscal health brought about by the recent recession, this time, structural problems are driving the decline.

Decades ago, lawmakers put in place two large, universal government programs, providing assistance to Americans meeting certain eligibility criteria regardless of need. Over the years, these entitlements became very popular—some would argue “untouchable.” They are Social Security and Medicare.

Together with Medicaid, these programs are the key drivers of noninterest spending. The federal government could cease all other operations, including its core constitutional duty to provide for the national defense, and would still end up in a fiscal hole within a generation. Unless Congress acts, Social Security, Medicare and Medicaid, and what Americans pay to service the massive national debt, will consume all tax revenues by 2030.

In fact, these programs are already squeezing other federal priorities. Sequestration spending cuts were enacted to motivate lawmakers to find agreement on a bigger budget plan that also controlled entitlement spending. The agreement never materialized. Instead, lawmakers allowed automatic spending cuts to kick in, cutting national defense spending the most.

This is the Elephant that shares the room with budget conferees. Lawmakers know that the most popular government programs are also the ones driving spending and debt to crisis-levels. Yet many of them refuse to publicly acknowledge the problem, let alone act to solve it.

Such procrastination puts the American Dream at risk for younger generations. Those entering the workforce now face a future clouded by the growing threat of much higher taxes and slower economic growth. Failure to address the need for entitlement reform also compromises funding for other national priorities like defense. In the long run, continued underinvestment in our armed forces could harm the forces’ capabilities—putting our very security at unacceptable risk.

The budget conference sets up an important opportunity to take action and address out-of-control entitlement spending. It may not be the popular thing to do, but it is absolutely necessary. Inaction is a sure way to American decline.

Romina Boccia is the Heritage Foundation’s Grover M. Hermann Fellow in Federal Budgetary Affairs.

Image: Flickr/401(k) 2013. CC BY-SA 2.0.