Entitlements Must Be Reined in, (Most) Analysts Say

  • Related Content

In recognition that entitlement reform must be at the heart of any realistic attempt to balance the federal budget, on March 28 the Cato Institute held a half‐​day seminar on whether and how entitlement spending can be controlled. The keynote address, “Entitlement Reform: Touching the Third Rail,” was given by former Massachusetts senator and presidential candidate Paul Tsongas.

Tsongas, cochairman of the Concord Coalition, criticized President Clinton for failing to address entitlement reform. He also attacked Senate Democrats for killing the balanced‐​budget amendment. Tsongas said that all entitlements, including Social Security and Medicare, must be reconsidered and called for means testing for all entitlement programs. Although he opined that Social Security was unlikely to be privatized, he said he welcomed the proposal because it focused the debate on the need for Americans to provide for more of their own retirement.

In an overview of the entitlement issue, Mark Weinberger, who served as chief of staff to the Bipartisan Commission on Entitlement and Tax Reform, said entitlement spending increased from 23 percent of the federal budget in 1963 to more than 47 percent in 1993. By 2003 entitlements will account for nearly 60 percent of all federal spending. Weinberger warned that unless significant reforms are enacted, by 2030 four programs, Social Security, Medicare, Medicaid, and federal employee retirement benefits, will consume all tax revenue collected by the federal government.

During a panel on reform of Social Security, Peter Ferrara of the National Center for Policy Analysis warned that by 2040 a combined employer‐ employee payroll tax of 40 percent could be required to pay Social Security benefits. Ferrara also noted that even if Social Security’s financial difficulties can be fixed, it remains a bad deal for today’s young workers. Payroll taxes are already so high that Social Security benefits provide a below‐​market return on those taxes. An individual could earn more from private savings, investment, and insurance. Ferrara called for the privatization of Social Security, noting that such reforms had proved both successful and popular in Chile and elsewhere.

Max Richtman, vice president of the National Committee to Preserve Social Security and Medicare, conceded that there were some long‐​term financing problems but noted that the system was currently running a surplus so there was no need for precipitous action. Richtman said that minor reforms such as raising the retirement age and increasing the payroll tax would be sufficient to preserve the system. He also strongly opposed proposals to means test Social Security benefits or reduce cost‐​of‐​living allowances. Young people have completely lost faith in the Social Security system, according to Richard Thau, executive director of Third Millennium. Warning of coming “intergenerational warfare,” Thau said young workers were paying taxes for benefits that they were unlikely to ever receive and were going to inherit the debts being run up by today’s political leaders. During the second panel, focusing on Medicare, Guy King, former chief actuary for the Health Care Financing Administration, warned that Medicare Part A, which is funded from the Hospital Insurance Trust Fund, will be bankrupt by 2002. Medicare Part B is not in danger of bankruptcy because it is financed out of general revenues, but it is one of the most rapidly growing portions of the federal budget and a major contributor to the budget deficit. King warned that none of the health care reform bills introduced in the last Congress would have solved Medicare’s underlying structural problems, including the inherent problems of any third‐​party payment system. John Rother, vice president of the American Association of Retired Persons, agreed that Medicare’s financing was a serious problem. However, he said, since many elderly Americans are dependent on the system, Congress should commit to finding whatever money is necessary. He objected to current reform proposals that would means test benefits, increase premiums, or force the elderly into managed‐​care plans.

Finally, Robert Moffit, deputy director of domestic policy at the Heritage Foundation, criticized Congress and special interests such as AARP for being unwilling to face the Medicare crisis. Moffit said that reforms such as increasing premiums and allowing the elderly to opt out of the program are essential.