Deficits, Debt, and the Entitlement Crisis

May/​June 2015 • Policy Report

Throughout the European Union, both short‐​term budget deficits and long‐​term debt have reached crushing levels. “The continent’s ongoing crisis provides an extraordinary laboratory, enabling us to review the results once the modern welfare state becomes wholly unaffordable,” Michael Tanner, senior fellow at the Cato Institute, writes. The EU, however, is hardly unique in facing this crisis. “The instability being seen in Europe today presents the likely endpoint for the United States, unless we are able to put our economic house in order.”

As Tanner points out in his new book Going for Broke, the U.S. national debt recently topped $18 trillion and is projected to reach $26.5 trillion within 10 years. Debt is a “particularly insidious” form of taxation without representation, Tanner writes. We reap the benefits of government spending today, while passing on the obligation to repay that debt to future generations. Those left with the tab, of course, have no vote on the matter.

t the same time, the debt is merely the most visible symptom of a much bigger issue: the size of government. The federal government currently consumes more than 20.4 percent of GDP. Include state and local spending, and government consumes more than a third of everything produced in this country. “That would be a problem regardless of whether or not the budget was balanced,” Tanner writes. A government that has grown too large carries significant costs — in reduced economic growth, less personal responsibility, and lost freedoms — regardless of how it is financed.

Throughout his book, Tanner shows how our looming fiscal train wreck has been amply abetted by both political parties. “But unless the United States learns to live within its means, a true economic disaster beckons,” he writes. Both discretionary and defense spending will have to be scrutinized and pared back to affordable — not to mention constitutional — levels. But no meaningful effort to control the size and cost of government can occur without dealing with entitlement spending. “Continuing to duck entitlement reform may well be ‘politically convenient,’ ” Tanner notes, “but doing so will condemn our children and our grandchildren to a world of mounting debt and higher taxes.” Social Security, Medicare, and Medicaid alone account for 47 percent of federal spending today, a portion that will only grow larger in the future. Eventually, they will gradually squeeze out everything else in the budget. And as much of federal spending as we devote to these three programs today, they are going to take even more in the future with the government’s newest entitlement program — Obamacare.

“One might have thought that, given the enormous debt and future obligations that this country is facing, we would avoid taking on yet another entitlement program,” Tanner writes. The Patient Protection and Affordable Care Act will cost more than $2.6 trillion over the next 10 years and will add more than $1.3 trillion to the national debt. It will force millions of Americans to change their current coverage to plans that meet government requirements. And it will significantly burden U.S. businesses.

Charles Blahous, a former trustee of the Medicare and Social Security systems, describes Obamacare as “the greatest act of fiscal irresponsibility ever committed by federal legislators.”

s Tanner ably argues throughout his book, we are on a course that cannot continue. In the end, the question of reform is one not of politics, but of math. “We are far beyond the point where ‘tweaking’ those programs — revising them around the edges, cutting a few dollars here, adding a little bit more in taxes there — will forestall the budgetary disaster lurking in our fiscal future,” he concludes. The only thing left to ask is whether our political leaders will have the courage to act before it’s too late.

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