By: R. Bruce Josten
June 26, 2013
Our looming entitlement crisis is a complex problem. But it hinges on a very simple choice. We can choose to face the facts — and act on them — or we can choose to face the consequences.
If we’re honest about America’s entitlement programs, we must recognize that they’re headed for insolvency without modernization and reform. But according to opinion polls, most Americans don’t realize it or refuse to believe it. Too many of our leaders who know better are content to distort the truth or delay action for their own political interests.
By settling for denial, distortion and delay on entitlements, we risk our nation’s future. If we fail to address the crisis now, we threaten our commitment to America’s poor and elderly, jeopardize our investments in other national priorities and ultimately face national bankruptcy.
So unless we’re willing to live with those consequences, we must face up to these five sobering facts.
1. The programs are unsustainable
As currently structured, entitlement programs can’t keep up with longer life expectancies and changing demographics. Soon, one-third of Americans will be retired and will spend one-third of their lives in retirement. Meanwhile, the ratio of workers to retirees has dropped precipitously. During this decade and the next, the number of Americans 65 or older will jump 75 percent, while those of working age will nudge up by just 7 percent. Within a decade, the total price for Social Security, Medicare and Medicaid will reach $3 trillion a year, but we’ll have fewer workers paying into the system and supporting those growing costs.
2. Contrary to popular belief, they don’t pay for themselves
Entitlement programs are not self-funding, and for the most part, never have been. Medicare has had a cash shortfall every year since its creation except two: 1966 and 1974. Medicare’s annual cash shortfall in 2011 was $288 billion. Social Security had a cash flow deficit of $58 billion in 2012. Money must be borrowed to make up for these shortfalls, making entitlements primary drivers of our deficits.
3. The major programs will be financially insolvent in 20 years
The trust fund for the Social Security Disability Insurance program will be exhausted in just three years. The trust fund for Medicare Part A, which pays for hospital services, will go bankrupt in 13 years. That projection is based on a “rosy scenario” under which Congress will do something it has refused to do time and time again — cut payments to doctors. Social Security will be unable to pay full benefits beginning in 2033 and will be forced to reduce payments by 23 percent.
4. They’re consuming our budget
Mandatory spending — entitlement programs and interest on the debt — already exceeds all federal income tax revenues collected. We have to borrow money and increase debt to pay for everything else including vital investments in defense, infrastructure, education, science and research. In the mid-1960s, federal spending for key discretionary programs outpaced entitlements by 3-to-1. Last year, the investment to entitlement ratio was 1-to-3, in a decade it will be 1-to-5.
5. It would cost $40 trillion over the next 75 years to keep these programs exactly as they are
We don’t have the money. Absent reform, the situation will soon require either economy-crushing new taxes or painful benefit cuts in the programs — or both.
Amid all these grim truths, we should be heartened by this fact: We can reform entitlements without baseline cuts or harming care for the elderly, disabled and less fortunate. Leading policymakers, organizations like the U.S. Chamber of Commerce and think tanks are exploring ways to restrain growth and make the programs sustainable. The good news is that there are many reform options available for consideration — relatively small adjustments in payments, benefits, eligibility, administration and overhead, coverage options and program efficiencies. If we choose from those options wisely and soon, we can achieve large savings over time while having a very small impact on individual beneficiaries.
The alternative is to do nothing, which would set into motion the most harsh, extreme and burdensome entitlement changes of them all — the massive benefit cuts and tax hikes that would have to be imposed when the programs’ funding just flat runs out.
The business community wants to use its skills and expertise to help find smart solutions to the many issues these programs face. All of us with a stake in the future of this country must engage in the debate with reason, facts, common sense and urgency.
The American public can handle the truth. But first, the nation’s leaders must be willing to tell them the truth.