Entitlements: Face the Truth or Face the Consequences

Jun 19, 2013

It’s a challenge that impacts every single citizen, the health of the nation’s economy, and the country’s ability to maintain its leadership role in the world. That challenge is the urgent need to reform and modernize entitlement programs—primarily Social Security, Medicare, and Medicaid.

In a landmark speech before the U.S. Chamber’s Board of Directors, Chamber Executive Vice President Bruce Josten laid out “ten truths” about entitlements (see below) and called for a national conversation and swift action on the reforms needed to strengthen and improve the nation’s core social insurance programs.

“We are speaking out—we are Americans, too, and the success of these programs impacts our families, friends, and employees. We need to make the responsible common-sense choices now, even if they are hard, to guarantee the promise of these programs to the next generation,” Josten told a capacity audience of business leaders and media. “The business community wants to use its skills and expertise to help the country find smart solutions to the many issues these programs face.”

The tone of the speech was urgent and reflected the current situation facing the nation. Without federal spending reform—driven primarily by entitlement costs—interest payments on the national debt will reach almost $1 trillion per year by 2023, and explode well beyond that—not if, but when, interest rates return to normal levels.

Josten left the door open on specific policy recommendations, but noted that the Chamber has supported a number of specific entitlement reforms, upgrades, and modernizations over the years. “We’ve been around this track enough times to know that until we can get the public and the politicians to agree there is a problem, there’s no sense in endorsing specific solutions. Our support for any particular combination of fixes will be based on an evaluation of the entire package—and not on the inclusion or exclusion of a particular provision.”

Any solution, however, will depend in large part on how effectively the nation deals with three other critical challenges: containing health care costs; preserving and enhancing the role of private savings in America; and pursuing a vigorous economic growth agenda, including energy development, trade expansion, education and infrastructure investments, an immigration overhaul, and tax and regulatory reform.

The Chamber’s role now is to educate the public and fill the current leadership void around the topic. “The real challenges surrounding entitlements is an ill-informed public, organizations that have existed for decades that oppose entitlement reforms, and the absence of real national leadership. These will be tough hurdles to overcome, but we must try,” he said. “With reason, facts, common sense, and quiet urgency, we aim to change that conversation by telling the American people the truth.”

10 TRUTHS ABOUT ENTITLEMENTS

Truth #1: Entitlement programs are huge, expensive, and reach into every corner of American life.  Social Security, Medicare, and Medicaid already cost $1.6 trillion per year. “These programs also reach into every corner of American life by the way they are financed—direct payroll taxes, borrowing from income tax revenues, and using federal debt,” Josten said.

Truth #2: Entitlement programs are not self-funding and are a main driver of deficits. Medicare, for example, 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. “It is important for citizens to understand this. Many oppose changes in entitlement programs because they believe they are just getting out what they put in.”

Truth #3: Entitlement costs are growing at an alarming rate. In ten years’ time, the total price for these three programs will soar to an astounding $3 trillion a year. As Social Security provides benefits to millions of retiring baby boomers, its costs will balloon to $1.4 trillion.

Truth #4: Longer life expectancies, changing demographics, and soaring costs explain why entitlements as we know them today are unsustainable. In Social Security’s early years, the ratio of workers to retired beneficiaries was high—16 to 1. By 2035, the ratio of workers to retired beneficiaries is projected to drop to 2-to-1. “Social Security and Medicare as currently structured and financed can’t come close to meeting the demand.”

Truth #5: Not a single major entitlement program is projected to be financially solvent 20 years from now. Social Security will be unable to pay full benefits beginning in 2033. Absent legislative action, all Social Security beneficiaries would face an immediate 23% benefit cut at that time.

Truth #6: The cost to make these programs financially solvent for the next 75 years is almost $40 trillion. “Absent reform, the situation will soon require either economy-crushing new taxes or painful benefit cuts in the programs—or both,” Josten warned.

Truth #7: Mandatory spending—entitlement programs and interest on the debt—are already squeezing out important investments in other essential programs. In fact, mandatory spending already exceeds all federal income tax revenues collected. “We have to borrow money and increase debt to pay for everything else,” he said.

Truth #8: We have nothing to fear from carefully crafted, phased-in adjustments to our entitlement programs. America’s entitlement programs have been adjusted and modernized many times over the years to keep up with changes in the economy and society. “Strengthening and improving entitlements in the face of compelling financial and demographic realities is reasonable and achievable.”

Truth #9: We can reform entitlements without baseline cuts and without breaking our commitment to the nation’s seniors, disabled, and poor. “No one in our mainstream political system today is talking about actually cutting the amount of money spent on entitlement programs. All that’s being discussed is ways to restrain the increases and make the programs sustainable.”

Truth #10: The biggest threat imaginable to Medicare or Social Security as we know them will be if we do nothing at all. “To do nothing will set into motion the most harsh, extreme, and burdensome entitlement changes of the them all—the massive benefit cuts and tax hikes that would have to be imposed when the programs’ funding just flat runs out.”

To learn more, got to www.uschamber.com/10truths

[VIDEO: Watch clips of Bruce Josten's entitlement reform speech before the U.S. Chamber of Commerce board of directors]

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