The Washington Post reports on a joint document signed by analysts at a number of think tanks urging a more disciplined approach by Congress on entitlement reform. Specifically, the joint document – signed by analysts from the Brookings Institution, the Heritage Foundation, the Urban Institute, the American Enterprise Institute and other organizations – calls for Congress to set 30-year budgets for Social Security, Medicare and Medicaid.
The report also outlines a number of myths regarding entitlement reform:
Myth: We can grow our way out of difficult budget choices.
Reality: Strong economic growth will make the choices somewhat easier. Hence, it is important to resolve the budget problem and reform social insurance in ways that enhance growth. However, we cannot grow our way to a sustainable budget outlook. The Government Accountability Office calculates that—if present trends and policies continue— it would take decades of “double digit” growth rates to eliminate the deficit. But, because of the structure of Social Security, that growth in productivity and wages automatically translates into higher future benefits, offsetting a significant portion of the fiscal gains from a larger economy. In short, if the status quo continues and entitlement programs are not reformed, there is no feasible growth rate of the economy that will produce a sustainable budget path.
Myth: Eliminating waste in government programs will solve the deficit problem.
Reality: Improving the efficiency of government programs is important as a matter of fiscal responsibility and restoring trust in government, but it will not significantly reduce future deficits. It is an illusion to think that eliminating waste in government programs will come anywhere near closing the projected gap between spending and revenues. In fact, if present trends and policies continue—and the growth of entitlement programs is not restrained—even entirely eliminating all non-entitlement spending will not close the budget gap.
Myth: The deficit problem can be solved by delivering health care more efficiently.
Reality: Making the health system more efficient can slow the rate of growth of medical care spending and reduce the gap between federal spending and revenues. High priority should be given to eliminating wasteful health spending and increasing value obtained for
public and private health spending. However, even if these efforts are successful, medical care spending is almost certain to grow faster than the economy, and federal health spending will still grow faster than federal revenues.
Myth: We just need to raise taxes starting with rolling back some or all of the Bush tax cuts.
Reality: Higher taxes could contribute to paying part of the rising social insurance bill, but we cannot simply tax our way out of the problem. Even restoring tax rates to pre-2001 levels will not close the gap between spending and revenues. Raising taxes will not address the underlying forces—population aging and health care cost growth—driving spending and revenues apart in the coming decades. Even raising revenues as a percent of GDP to European levels—levels that are unprecedented in the
—will not be sufficient. If the wedge between spending and revenues attributable to social insurance programs continues to grow, taxes would have to be raised continuously and would eventually cripple the economy. Finally, even if taxes were to be raised, it is not at all clear that Social Security, Medicare, and Medicaid should receive automatic priority for these resources over other needs such as education, homeland security, and infrastructure investments. United States
Myth: Cutting taxes will increase revenues.
Reality: Lowering tax rates can stimulate long-term economic growth, but at today’s rates not by enough to pay for the lost revenue. Tax cuts used to stimulate the economy during a recession are a different matter, but they should be kept temporary and ideally should be paid for once the economy recovers.