Debt Ceiling Debacle Redux Reveals Need for Aggressive Entitlement Reform

With the fiscal cliff last January and the recent shutdown and debt ceiling debacle, the past 9 ½ months have been a model of congressional dysfunction. And, as we have been doing for years, the Taxpayers Protection Alliance has been following developments on the government shutdown debate and the ongoing fiasco of the endless impasse to agree to terms to reopen the federal government. The biggest deadline is quickly approaching, the debt ceiling, a limit set by Congress regarding the amount of money that the government can borrow for public spending. During the Budget Control Act of 2011, part of the deal was to raise the limit to $16.4 trillion, in return for spending cuts (those cuts coming now in the guise of sequestration after the failure of the Super Committee). The United States actually hit the ceiling on December 31, 2012, but “extraordinary measures” were taken by the Treasury Department to enable spending to continue and the debt ceiling is at $16.699 trillion now. The new deadline is set for Thursday, October 17, 2013. Should Congress fail to negotiate a deal that would be signed by the President to lift the debt ceiling, the government would have $30 billion (and cash-on-hand) to continue to spend for services, and payments to creditors; otherwise the US risks default and some early warnings have already come as we inch further towards the deadline. Though that may be a great deal of inside baseball, that is very watered-down and to the point in terms of what is going to happen at midnight tonight.

The nation is nearing $17 trillion in debt, taxpayers are on the hook for hundreds of billions in interest payments alone, and the real drivers of our long-term debt and deficits are being ignored in these ongoing theatrics over short-term spending deals and how much to raise our debt limit. TPA has been a tireless advocate for tax reform, especially when it comes to dealing with the corporate tax rate. Businesses are in desperate need of a corporate tax code that keeps America competitive with the world, and our current code harms our small and large businesses and the holds back the positive power they could have on our economy. There are other major issues however that need to be taken seriously by our elected officials in Washington and TPA strongly believes that the time for entitlement reform is now.

The figures that have been reported in recent studies are extremely alarming and underscore the need for more than just a “serious conversation” on how to reform our major entitlement programs. In August, University of California-San Diego professor of economics James Hamilton put out a working paper that showed United States was on the hook for over $70 trillion in off-balance sheet liabilities by the end of 2012. Think about that, we are risking default and becoming a “deadbeat nation” because our debt is nearing $17 trillion and we can’t find a way to agree on how to reduce spending levels to avoid hitting that ceiling, but yet we have more than four times that amount owed on our unfunded liabilities in government-run programs. The bulk of that $70 trillion comes from two of the most toxic programs in existence: Medicare and Social Security. The toxicity comes from the sheer fear of altering these programs in any way, shape, or form that may be used against politicians when they are running to get reelected. The “third rail” in politics is what Social Security has been called and it certainly has been that way for some time. In 2005, fresh off reelection and coupled with increased majorities President George W. Bush sought to “reform” Social Security and it died on the vine before it could even get moving. As for Medicare, Bush expanded the program with “Medicare Part D” in a contentious and close vote but the cost of the program to taxpayers is certainly impacted by the rate of growth for Health Care costs. The longer these programs remain “untouched” the worse off the liability problem becomes for the taxpayers.

As it stands now, the figures for Social Security and Medicare are alarming, if not outright frightening in a long-term outlook (courtesy “Off-Balance-Sheet Federal Liabilities”):

Medicare: $27.6 trillion—Likewise, this the best guess as to the “present value”—or how much more cash would have to be invested now—to pay for all the Medicare-related costs government actuaries expect older Americans to incur in the future.

Social Security: $26.5 trillion—This giant figure represents the net present value—in other words the amount of additional cash the Social Security Administration would need to sockaway in steady investments today—to pay for the all benefits participants will be entitled to later.

More than two-thirds of our unfunded liabilities come from two entitlement programs and yet the only “major talks” going on in DC right now are whether nor not we can fund the government for six months or five? This is unacceptable and TPA has been vehement in our criticism in the failure of leadership in Washington on all sides and in all corners of the federal government. The real question is whether leaders will step up and find real ways to reform those entitlement programs and help put us on a pathway back to sustained growth and reduced spending. There are many ways these programs cans be reformed and TPA encourages policymakers on both sides of the aisle to look at proposals that could save money and preserve the programs over the long-term, instead of accepting the status quo and allowing scare-tactics to dominate the conversation.

• When discussing Social Security, various proposals for reform have included any or all of the following: raise the normal retirement age; slowing initial benefit growth; use an alternate measure of inflation for cost of living adjustment; reduction in benefits; adjusting methods of calculating benefits; and include all new state and local workers
• When discussing Medicare, various proposals for reform have included any or all of the following: increase cost sharing; raise Medicare premiums; require manufacturers to pay a minimum drug rebate low-income Beneficiaries; enact medical malpractice reform; increase Medicare retirement age; replace traditional Medicare with premium support

While TPA is not advocating for any proposals or specific reforms to the programs, we believe the framework is there already but what is missing is leadership at the federal level to tackle the issue seriously. There is no need for another “commission” or “gang” or “committee” that would just take months to argue and pontificate all to fall victim to proposals discussed earlier. The need for reforming these major programs has been a long-time in the making and with a debt nearing $17 trillion and a public seemingly ready for long-term spending reduction and a renewed push for fiscal sanity, this is an opportunity that should not be left on the table any longer.