Twenty years ago, President Bill Clinton appointed Sens. J. Robert Kerrey and John Danforth, both now retired, to head a Bipartisan Commission on Entitlement and Tax Reform. That commission produced a report in which 30 of its 32 members concluded that “current trends are not sustainable.”
As the saying goes, the more things change, the more they stay the same.
Kerrey and Danforth, both now associated with The Concord Coalition, a nonpartisan fiscal watchdog organization, recently published their “20th Century Perspectives” on that commission report. Their conclusion? “The bottom line is that we still have a structural mismatch between entitlement promises and revenues – the basic dilemma our commission warned about 20 years ago.”
The former senators cited several positive fiscal developments in the years since the commission’s report: a substantial slowdown in healthcare cost growth; unusually low interest rates resulting from the Great Recession; and a projection of relative stability in the federal debt as a share of the economy over the next few years. But they warned that the current level of debt is nearly twice its average since World War II. “All of the positive developments since 1994 have not been enough to put the budget on a sustainable track,” they wrote.
Kerrey and Danforth said their concerns were reinforced by a conclusion in the July 2014 long-term budget outlook published by the Congressional Budget Office (CBO): “Beyond the next 25 years, the pressures caused by rising deficits and debt would become even greater unless laws governing taxes and spending are changed.” With deficits as big as the CBO projects, they said, federal debt will be growing faster than GDP (gross domestic product), a path that ultimately would be unsustainable.
For years, Congress – and the American public – has steadfastly refused to address the biggest drivers of the looming fiscal crisis. “Social Security, Medicare and Medicaid run on autopilot,” said Kerrey and Danforth. “Congress does not ‘budget’ for these programs. They simply grow with the number of beneficiaries, and in the case of Medicare and Medicaid, with per-person healthcare costs. As life spans increase and more of the huge baby boom generation enters retirement, the cost of providing Social Security, Medicare and Medicaid benefits will grow both as a percentage of the budget and as a share of the economy.”
Social Security already has begun to run cash deficits, and its Disability Trust Fund faces insolvency. Transfer payments have grown from 56 percent of the federal budget in 1994 to 70 percent in 2014. At the same time, federal investment spending has continued a steady downward slide for decades. Forty years ago, said the former senators, the government spent 4.1 percent of GDP and 22.7 percent of the budget on major investment programs. It now spends only 2.7 percent of GDP and 12.8 percent of the budget for such purposes. And without major changes, that percentage will continue to shrink. Over the next 25 years, Social Security, Medicare, Medicaid and interest on the federal debt are projected to grow by 10.3 percent of the economy while all other programs are projected to grow by 0.6 percent.
Without appropriate policy changes, said Kerrey and Danforth, in less than 15 years, projected outlays for entitlements and interest on the debt will consume all tax revenues collected by the federal government. “In 2030, federal debt held by the public is projected to exceed the size of the economy and eclipse the largest level in history …. By 2050, the debt level is projected to more than double to 245 percent of the economy.”
The seven findings in that 1994 report remain accurate today, said Kerrey and Danforth, “and are widely ignored by our political leaders.”
The two senators called on all members of Congress, and especially the 2016 presidential candidates of both parties, to face up to the responsibility of putting the nation’s budget on a sustainable path. “We do not seek pledges,” they asserted. “There have been far too many of those. We seek solutions. ‘Repeal Obamacare’ and ‘Tax the Rich’ are slogans, not solutions. Candidates should tell the American people how they would deal with each of the seven problems identified in the findings of our bipartisan commission. If candidates have objections to our findings, let them explain those objections. If they support the Do Nothing Plan, let them declare so publicly and own the consequences. Twenty years of procrastination is enough.”