It is time to separate the discussion of “entitlement reform” from the debate over cutting federal spending and reducing the deficit in the near term (the next five years, or the next 20 years for that matter). Like many other good ideas, entitlement reform has been perverted by the Washington Establishment and is being used to corrupt efforts to reduce federal spending.
Politicians love to couch the “deficit problem” and the “spending problem” as long-term problems requiring immediate action to avert a future crisis. It prevents them actually having to reduce federal spending anytime soon. That is why the “immediate action” politicians propose to avert a future budget crisis never actually entails immediate reductions in federal outlays.
For example, watch Karl Rove spin his head off in this interview defending the fraud just perpetuated on the American people in the guise of a budget deal to “cut” federal spending by $38 billion during the rest of FY 2011. According to Rove, “budget cuts” doesn’t mean reducing government outlays right away; it means reducing the government's “authority to spend in the future.” In Karl’s World, the definition of “cutting government spending” is “spending less in the future than the government otherwise would.” In his defense, Rove didn’t dream up this scam, he is just mindlessly repeating the Republicans’ talking points that they got from the Democrats. The scam has been going on in Washington for years under the name of “baseline budgeting.” Under baseline budgeting, politicians and bureaucrats estimate what they must spend to maintain “current services” or how much they are required to spend on entitlement programs under current law, amounts that automatically increase every year. Then, when pressured to “cut” spending, the politicians agonize and posture and finally announce with great fanfare that they are going to increase spending by only a fraction of what they otherwise would have spent without their heroic economizing efforts.What a hoot. No wonder Donald Trump polls so well these days. The American people must be thinking that if we are going to elect jokesters like this, let’s get ourselves a real clown.
The mistake Republicans made this time around is they were so desperate to placate the Tea Parties they failed to hedge their fraud in baseline-budgeting terms. Now they have to send Karl Rove out with a shovel to scoop up the mess they left lying on the National Mall. The American people have a common-sense definition of what it means to “cut government spending,” namely "reducing actual outlays so government spends less today than it did yesterday."
There is, of course, a kernel of truth to argument that entitlement programs are on automatic pilot and will bankrupt the nation unless remedial action is taken. But, it is a truth in the nature of the certainty that a New Yorker driving west will plunge into the Pacific Ocean if he does not at some point alter course off a due-west heading or stop altogether. Trivial.
Moreover, whatever remedial action is necessary to get entitlement spending under control over the long run does nothing much to help the current spending problem. That is why all the discussion about grandiose paper schemes to “reform” entitlement programs is actually counter productive when it comes to getting current government spending under control.
Since George W. Bush took office, government spending has increased by one third, skyrocketing from 18.2 percent of GDP in 2000 to 24.3 percent this year. Entitlements on automatic pilot were not the cause. In January 2000, CBO projected that under the then current-law baseline, total federal spending would equal 16.5 percent of GDP in 2010.
The way politicians package and spin entitlement spending allows them to equate long-term, structural problems of the welfare state with short-term fiscal exigencies, which diverts the public’s attention away from current spending in the process. Defining the problem as long-term and then estimating the consequences of various actions/non-actions over some sufficiently long horizon, ten years or more, magnifies the urgency of "taking immediate action" by the shear size of the aggregate totals. The projected savings likewise tote up to huge numbers while more mundane, real short-term budget reductions are made to appear small and insignificant by comparison. And that is how the conversation is turned to the need for immediate tax increases because it "would be a disaster" to cut enough from discretionary spending. Getting the picture?
The Washington line goes, “Anyone serious about the deficit must take on entitlement programs and revenues." You’ve got to hand it to the politicians, they know how to manipulate the public: Horribly huge problems addressed by fabulously heroic politicians with magnificently huge reforms, none of which threaten to impact anyone’s behavior anytime soon. It is another classical political fraud.
The most recent episode played out in this entitlement game came with the Medicare reform put forward by House Budget Committee Chairman Paul Ryan and former CBO Director Alice Rivlin. The essence of their proposal was inserted into the 2012 House Budget Resolution, which the House of Representatives passed on April 15. This proposal would transform Medicare from its traditional “fee for service” approach—in which the federal government fixes medical-care prices and reimburses health care providers for services rendered and products provided according to a federal price schedule—into a system where Medicare recipients would receive a monthly government cash stipend with which to purchase their own health insurance from private insurance companies. The amount of the government payments would be calculated based on the average cost of each Medicare enrollee in 2012 and would grow at the annual rate of growth in GDP per capita plus one percentage point. The retirement age also would be increased by two months every year until it reaches age 67 by 2032.
I am not saying this is a bad idea (although I must say I see one huge foot in the door here for expanding this "premium-support" approach to Medicare reform to include "premium support" for everyone, replacing ObamaCare with a Republican version of universal health care); I am saying it is an irrelevant and distracting idea if the objective is to do something real to reduce the size of government anytime soon. Whatever one thinks about the substance of Paul Ryan’s and Alice Rivlin’s proposal, one thing is unambiguously clear: It will not significantly reduce federal spending or the deficit for at least 30 years. See the table below based on data from the Congressional Budget Office’s preliminary analysis of the Rivlin-Ryan plan.
Comparison of Current Law Spending and Spending under theRivlin-Ryan Medicare Premium-Support Proposal Mandatory Federal Outlays for Health Care (Percentage of GDP rounded to the nearest ¼ percent)
2020 2030 2040 2050
CURRENT CBO PROJECTIONS
Extended-Baseline Scenario 7 8¾ 10¾ 12¼
Rivlin-Ryan Health Care Proposal* 6¾ 8¼ 9¼ 10
CHANGE IN FEDERAL OUTLAYS
Relative to Extended-Baseline Scenario - ½ - ½ -1½ -2½
If Congress were really serious about cutting the size of the federal government back to what it was when George W. Bush moved into the White House, it would forget about entitlement reform for now and get serious about reducing federal discretionary budgets across the board and laying off federal employees. But then no one ever accused Members of Congress of being serious about anything except spreading other people’s money around sufficiently to stay in office. It’s the bipartisan version of spreading the wealth around.
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