Can we prevent a fiscal collapse without reforming entitlements?

posted at 12:01 pm on June 15, 2012 by Dustin Siggins

Note: This post was done in tandem with Just Facts President James Agresti. The data we cite below can be found in this spreadsheet.

If the U.S. government continues with its current tax and spending policies, children born this year will be saddled with a crippling publicly held debt that is more than twice the size of Japan’s by the time they turn 30 years old. This grim picture, projected by the Congressional Budget Office (CBO) in its newly published annual long-term budget outlook, expects U.S. publicly held debt to grow from 73% of GDP by the end of 2012 to 247% of GDP by 2042.

Worse still, the CBO projects that current policies will continue to drive the U.S. deeper into debt, and by the time today’s newborns reach 38 years of age in 2050, the major federal healthcare programs and Social Security will consume all federal revenues, leaving nothing for any other function of federal government or even interest payments on the national debt.

Despite this ominous forecast, prominent economist and former Obama advisor Jared Bernstein is declaring that we don’t need to reform Medicare, Medicaid, Social Security, or “government’s other critical functions” in order to prevent an “explosive” debt that “swamps the economy.” Bernstein says “it is well within our means” to reduce the national debt by following the “broad outlines” of current law, “meaning all the Bush tax cuts expire, for example.”

When the CBO makes long-term budget projections, it typically projects two scenarios informally called “current law” and “current policy.” Current policy is what the federal government is actually doing, whereas current law is what is on the books. These are dramatically different because Congresses and Presidents have enacted tax and spending laws that don’t account for inflation or wage growth, expire in the future, or become effective in the future. Bernstein suggests that we stick with the current law to solve the looming debt catastrophe.

While Bernstein concedes that some elements of current law may be “unrealistic” in the short-term, he insists “there’s no reason” we can’t follow this plan for the long-term and those who ignore this approach “are doing so not for substantive, but for ideological reasons.”

Bernstein describes his proposal for taming the debt by saying that the “Bush tax cuts would all have to eventually sunset, and we’d need to continue – and ramp up – what looks like early progress on slowing the growth of health care spending.” Although this description is based upon CBO’s projections, Bernstein misrepresents these projections by whitewashing the details of the path he advocates. In truth, it would involve far more expense and sacrifice than he reveals.

Under current law, the good news is that publicly held debt drops from 73% of GDP today to 0% by 2069. This is a vast improvement over just last year when the CBO projected that the publicly held debt would be 75% of GDP in 2069 (this is partly due to the changes in law, but most of the improvement is attributable to CBO’s altered assumptions about future economic and demographic circumstances). The bad news, however, is that the following will also occur:

• federal taxes will perpetually consume a greater share of the U.S. economy, rising to 21% higher than the average of the past 40 years by 2025, 40% higher by 2045, 57% higher by 2065, and 66% higher by 2085. The CBO explains that this incessant tax growth occurs because “most parameters of the tax code are not indexed for real income growth, and some are not indexed for inflation.” As an example, the typical married couple with two children earning the median income of $96,200 will see their income and payroll taxes steadily rise from 13% of their income today to 24% over the next 25 years—an 85% increase.

• Medicare payments for physician services will be cut by 27% starting in 2013, bringing Medicare payment rates down to Medicaid levels. These payment rates have caused substantial problems for patients trying to get access to doctors. These Medicare cuts will increase in subsequent years and then be deepened by Medicare cuts in the Affordable Care Act.

• spending on all federal programs but Social Security and the major healthcare programs will decrease from 12.1% of GDP in 2012 to 7.9% of GDP over the next 25 years—a 35% reduction. This includes programs such as national defense, food stamps, other nutrition programs, unemployment, veterans’ benefits, federal employment retirement benefits, transportation, and education.

The specifics above paint a much fuller and far different picture than Bernstein’s sanitized description of the path he would have us take. It also bears nothing that this is an optimistic scenario because it does not account for the prospect of future severe recessions or major wars, which the CBO acknowledges “will probably” occur and “will probably cause significant and persistent worsening of the budget outlook relative to the projections contained in this report.” These projections also “omit the impact” that higher taxes “would have on people’s incentives to work and save,” and as the CBO explains, these higher tax rates will discourage “many taxpayers” from working and saving.

Like Bernstein, Ezra Klein of the Washington Post has also supported this plan and grossly understated its downsides, calling it the “do nothing” plan. Media Matters for America recently did the same while incorporating significant factual errors into its analysis.

Could we tame the debt in the way Bernstein and Co. claim? Yes, but if Congress and the President do nothing, drastically higher taxes and deep cuts to wide-ranging government programs are also a part of the scenario. Rather than ignore this reality, those who support the “do nothing” plan should candidly argue their case instead of masking how this proposal would impact the nation.


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no!

screwauger on June 15, 2012 at 12:02 PM

Yes. By taxing all rich Americans at 137% we can pay for everything. Why do you right-wing-dings hate math?

Bishop on June 15, 2012 at 12:03 PM

Well, maybe. If Congress sets the minimum age for Medicaidicare Part-DD and Social Insecurity to 200 years.

Jeddite on June 15, 2012 at 12:05 PM

It’s all over but the shooting…so get ready…

PatriotRider on June 15, 2012 at 12:05 PM

No.

Next question?

cthulhu on June 15, 2012 at 12:06 PM

Millionaires and Billionaires, Fair Share, Skin in the Game, Warren Buffet’s Secretary, Eat my Waffle, Corpse-man, Obamacare, Solar Power.

That’s my Regime’s plan for fiscal sanity and we are sticking with it.

CorporatePiggy on June 15, 2012 at 12:06 PM

no!

screwauger on June 15, 2012 at 12:02 PM

.
Dittos.
.
.
BTW, another GREAT picture analogy, Ed.

listens2glenn on June 15, 2012 at 12:06 PM

No we can’t. Entitlements alone, and as they are now, will cause fiscal collapse all too soon.

hawkeye54 on June 15, 2012 at 12:06 PM

Anyone who says the Republicans are the extremists isn’t looking too carefully at what the D’s are advocating.

Chuckles3 on June 15, 2012 at 12:08 PM

If Congress sets the minimum age for scraps Medicaidicare Part-DD and Social Insecurity to 200 years entirely.

The only way as I see it.

hawkeye54 on June 15, 2012 at 12:08 PM

Yes.

A better question is should we ignore entitlement reform when attempting to avoid the looming fiscal crisis. The answer to that is no. We can end deficit spending and not reform entitlements. However, that would require gutting just about every other part of the federal government.

Entitlement reform is actually quite easy and doing so may end deficit spending all by itself. Shift the cost burden to the private sector. All done.

NotCoach on June 15, 2012 at 12:08 PM

Develop rock power, getting power from rocks. Those things are everywhere. Sand, too.

Uncledave on June 15, 2012 at 12:09 PM

Short answer: No.

The short answer is also the long answer. It is the only answer.

Once a significant majority of people accept that, if they ever do, the issue will be how to do it and that is where the political battle will be fought.

But, if not enough people accept that, very soon, the two hundred year old modern era experiment with democracy will fail. It will commit economic suicide, as De Tocqueville said it could.

farsighted on June 15, 2012 at 12:09 PM

Anyone who says the Republicans are the extremists isn’t looking too carefully at what the D’s are advocating.

The Dems have learned very well how to successfully deflect and deceive, and through leading the way in public education indoctrination, also carefully molded two generations of gullible voters who haven’t spent much time looking carefully at all.

hawkeye54 on June 15, 2012 at 12:11 PM

Develop rock power, getting power from rocks. Those things are everywhere. Sand, too.

Uncledave on June 15, 2012 at 12:09 PM

ROFL

Bishop on June 15, 2012 at 12:14 PM

Look on the bright side; thanks to Obama, you already have your Greek columns.

OldEnglish on June 15, 2012 at 12:15 PM

Interesting economist on Fox just said that the “U.S. is more like Greece than Germany today”.

Schadenfreude on June 15, 2012 at 12:15 PM

We could try to grow our economy. Go full out using the hydrocarbons we’ve been blessed with. Reform immigration so that we’re letting educated producers immigrate, not uneducated peasants. Crack down on entitlement abuse. People on the dole have 2 children only, kind of like working people do. Get away from this silliness that everyone needs a college education when there aren’t enough jobs for college educations. Expand trade schools. Lots of answers, none of which are politically palatable to the ems or the RINOs.

AcidReflux on June 15, 2012 at 12:17 PM

Solution: BORROW MORE MONEY! RAISE TAXES! HIRE MORE GOVERNMENT WORKERS!

GarandFan on June 15, 2012 at 12:22 PM

All Mitt Romney has to do to dismantle the entitlement state is sign Executive Order making it so. Starve the Democrat party of every last dime!

THANKS, PRESIDENT OBAMA!

Punchenko on June 15, 2012 at 12:28 PM

the Congressional Budget Office (CBO) in its newly published annual long-term budget outlook, expects U.S. publicly held debt to grow from 73% of GDP by the end of 2012 to 247% of GDP by 2042.

…but JugEars and the MSM say we are on the right path and going in the right direction!

KOOLAID2 on June 15, 2012 at 12:30 PM

Develop rock power, getting power from rocks. Those things are everywhere. Sand, too.

Uncledave on June 15, 2012 at 12:09 PM

Uncledave for the win!

davisbr on June 15, 2012 at 12:30 PM

hawkeye54 on June 15, 2012 at 12:11 PM

The indoctrination started in the 1850′s with Horance Mann’s Boston Day School. As this model of education moved across the states more and more people fell under it’s sway.

chemman on June 15, 2012 at 12:34 PM

It doesn’t make any difference. We are apparently going to go down with Europe . . .

Greyledge Gal on June 15, 2012 at 12:37 PM

Well, first thing I would do is eliminate the capital gains tax completely (or set it very low to about maybe 5%). I would also reduce the tax on capital repatriation to about 10%. This would cause a spurt in business investment and economy growth and allow companies like Apple to repatriate tens of billions of dollars back to the US that can be used to put people to work:

http://www.macobserver.com/tmo/article/over_half_of_apples_cash_locked_in_offshore_accounts/

That should begin to increase tax revenue as more people get back to work and more businesses are created.

crosspatch on June 15, 2012 at 12:37 PM

ENOUGH WITH THE AUTO PLAY VIDEOS ON THE HOME PAGE!!!! IDIOTS!!!

echosyst on June 15, 2012 at 12:39 PM

Entitlements alone, and as they are now, will cause fiscal collapse all too soon.
hawkeye54 on June 15, 2012 at 12:06 PM

Actually, entitlements as they are now could almost be survivable. A little bit of Cancer is like a little bit of cancer. There is no such thing.

The problem with entitlements is that they increase exponentially. There will never be “enough” wealth redistribution; everyone who wants any of it will always want more of it.

logis on June 15, 2012 at 12:40 PM

The indoctrination started in the 1850′s with Horance Mann’s Boston Day School. As this model of education moved across the states more and more people fell under it’s sway.

That I did not know. Then, it is a model of education that needs become extinct.

True education should begin in the home. Alas, too many parents have abdicated that responsibility, along with many others, to government.

hawkeye54 on June 15, 2012 at 12:40 PM

At the current year-over-year rate of decrease in individuals making $1M a year, before long there won’t be any billionaires or millionaires left to tax!

Yiwen on June 15, 2012 at 12:41 PM

It doesn’t make any difference. We are apparently going to go down with Europe . . .

Greyledge Gal on June 15, 2012 at 12:37 PM

Come now. The great RINO hope Romney will slow the air speed and make sure when we crash, the crater won’t be as big!

lm10001 on June 15, 2012 at 12:41 PM

Similar for YOY decrease in individuals who OWN $1M, versus making $1M/yr.

Yiwen on June 15, 2012 at 12:41 PM

echosyst on June 15, 2012 at 12:39 PM

Firefox – fully loaded. Problem gone (and auto-refresh).

OldEnglish on June 15, 2012 at 12:43 PM

No, but we could reform entitlements with less pain if we’d let the people produce.

Grow the pie. Grow the pie. Grow the pie. Repeat as necessary until accepted.

We are drowing in an ocean of idled resources right now. America isn’t producing to anywhere near our capacity. This is because of 100 years of scaredy-pants left-wing policies. Change this, and you change everything.

J.E. Dyer on June 15, 2012 at 12:45 PM

If social Security is now an entitlement, then why do I not have the ability to opt out? What can we do to stop the ridiculous actions taking place in DC? I feel as though I have no say. They take my money, without the courtesy of a reach around, and spend it on stuff I would not spend it on myself. Then they tell us it’s for our own good. We must put people into office that will work to get us back to the proven principles of freedom. Top down government is not the answer. We, as a country, can only survive if we have our freedom. BO, and his minions, would have it otherwise.

Nevada Dad on June 15, 2012 at 12:52 PM

Bernstein graduated from the Manhattan School of Music with Bachelors Degree in Fine Arts where he studied double bass with Orin O’Brien. He earned a Masters Degree in Social Work from the Hunter School of Social Work, and, from Columbia University, he received a Masters Degree in Philosophy and Ph.D. in Social Welfare.

http://en.wikipedia.org/wiki/Jared_Bernstein

Well, if the above said it, and the boy JournoLister with the Washington Post agrees, we really can have our cake and eat it too.

God help us…

MNHawk on June 15, 2012 at 1:22 PM

Develop rock power. Uncledave on June 15, 2012 at 12:09 PM

Why not? It goes to 11.

Akzed on June 15, 2012 at 1:52 PM

Both “Bob” on The Five and several liberals I know think there is no problem with debt, and escalating it forever.

John Maynard Keynes’ comment about “..in the long run we shall all be dead..”was really:

“The long run is a misleading guide to current affairs – in the long run we are all dead.”

He was also without the last 90 years of economic experience and scholarship.

J.E. Dyer on June 15, 2012 at 12:45 PM

.

Grow the pie, yup!

Even most left economists wince at raising taxes in a recession. But our POTUS wants to do just that.

Cutting taxes will not work well in this economy, either. I disagree with macro approaches, Republican or Democrat.

IlikedAUH2O on June 15, 2012 at 2:05 PM

To begin to get the deficit situation under control, the politicians will need to face entitlement cuts, defense cuts, and revenue increases. They will probably not even begin to contemplate this until next year.

TouchdownBuddha on June 15, 2012 at 2:18 PM

Can we prevent a fiscal collapse without reforming entitlements?

The answer is no. And NEITHER political party will save us ultimately. Voting Republican means your country will last 40-50 years longer than if you vote Democratic. The is because Republicans spend LESS (especially on entitlements. But the best the Republicans can accomplish is to cut the RATE of spending not stop or reverse it. It should also be noted that the last Republican president Dounle-Ya was a champion spender.

The fatal flaw of a democracy is that the people are easily corruptible and can be persuaded by charismatic leaders to give up large chunks of their personal autonomy in favor of government giveaways which soon become addictive and thus entrenched. The more addicted people get (and thus dependent)the less able they are to think rationally-becoming intellectual droids. The nearly $16 trillion national debt is proof positive of the fruits of paternalism. The peoples’ blase response to this debt’s future ramifications is proof positive of a dulled national intellect engendered by this paternalism.

Even the most sincere Republican president is faced with this constant dilemma.viz: Should I stop the bleeding by cutting deeply into entitlement programs-which will result in national outrage so vehement that I may well be impeached on the spot-let alone fail in my re-election attempt further on down the road–or–2 Allow the bleeding to continue-but slow it down-with half-assed compromises which will cut the RATE of spending but not the spending itself-let alone reversing the process with that four letter word C-U-T-S. “I have saved my job but not mu country.”

MaiDee on June 15, 2012 at 2:20 PM

To begin to get the deficit situation under control, the politicians will need to face entitlement cuts, defense cuts, and revenue increases. They will probably not even begin to contemplate this until next year.

No will any action be taken until the catastrophe strikes, then its slash and burn, baby.

hawkeye54 on June 15, 2012 at 2:58 PM

Are you kidding? It’ll be a God-given miracle if we can prevent a SOCIAL collapse, let alone a fiscal one.

There are hundreds of thousands of people who will say one fine morning: “Hey! Wheh be mah wefare check, yo?”…and promptly start looking for the nearest blunt instrument and/or ingredients for a Molotov. And when that happens, ladies and gentlemen, the bad numbers on the nation’s balance sheet may quickly become the least of our worries.

MelonCollie on June 15, 2012 at 7:29 PM

So liberal thinkers believe the debt crisis will take care of itself?

I don’t doubt it.

waelse1 on June 15, 2012 at 7:46 PM

How about reforming these entitlements all stuffed with federal employees doing anything to justify a check, however, they don’t make a product or build anything that’s taxable and if you can read through the list without laughing you must be employed by the government.http://www.usa.gov/directory/federal/index.shtml

mixplix on June 15, 2012 at 10:01 PM

The answer, actually, is a resounding yes.

Peter Ferrara in chapter 3 of his must-read (imho) book explains everything: the fact it is already being done in Chile, there will be some costs while transitioning but they can be minimized and that reforming entitlements can be done by moving the power of the purse from a central authority to the free citizenry – WOW, what a novel concept!

Now all that’s required is some political will to do the right thing. Right, good luck on that.

rocksandbroncs on June 15, 2012 at 10:13 PM