A lot can happen in 20 years. And yet sometimes you look back and find that for all the apparent change, you are not very far from where you started.
We have had that feeling lately as we look back on the work we did as co-chairmen of the 1994 Bipartisan Commission on Entitlement and Tax Reform. In August of that year, our commission issued an interim report. Thirty of the 32 members agreed that “current trends are not sustainable.”
Much has changed since then. Yet in Washington, D.C., one thing remains the same: Current trends are unsustainable.
The numbers have changed, of course. In fact, some of the changes have been positive, particularly the projections for health care spending and interest on the debt. For the next few years at least, the debt is projected to remain relatively stable as a share of the economy.
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Unfortunately, that is not the end of the story.
We still have a structural mismatch between entitlement promises and revenue. An aging population and rising health care costs, the basic dynamics that we warned about, remain a threat to fiscal stability.
Meanwhile, the passage of time, the failure to take more ambitious actions and the enactment of new obligations have combined to limit our choices and placed the government in a more difficult position to address the challenges than it was in 20 years ago.
The debt burden has grown sharply. Debt held by the public has gone from 48 percent of gross domestic product in 1994 to 74 percent in 2014. This limits our fiscal flexibility and constrains the policy choices of future generations.
Demographics are working against us. The baby boom generation, which was coming into its peak earning years when we were on the commission, has begun to retire, slowing potential economic growth, lowering potential revenue, and increasing spending on retirement and health care benefits.
Social Security, which still had many years of positive cash flows ahead of it in 1994, has begun to run cash deficits. With each passing year, the cumulative gap that must be closed grows wider, and the Disability Insurance Trust Fund is projected to run dry before the next president takes office.
Government health care benefits have been expanded with a Medicare prescription drug benefit (Part D), wider eligibility for Medicaid and new health-insurance subsidies. Discretionary spending has been capped at its lowest level in more than 50 years, making further savings from this category improbable. Simply maintaining the current caps will be an onerous challenge. Income tax rates have been cut for most households, and the revenue drain from “tax expenditures” has increased.
Even the good news on interest costs and health care comes with some major caveats.
Interest on the debt has grown more slowly than we projected, primarily because deficits were not as high as forecast in the early years, and interest rates in recent years have been unusually low due to the economic slowdown. As deficits begin to rise again and interest rates return to more traditional levels, however, the cost of servicing our higher debt will become the fastest-growing category of the budget. The prospect of spiraling interest costs has merely been postponed, not eliminated.
Health care cost growth has moderated considerably in recent years, and this development is now programmed into the long-term projections by both the Congressional Budget Office and the Medicare trustees. However, the extent to which this slower growth will persist is highly uncertain. If the recent decrease in per-person costs proves to be temporary, as some analysts believe, the expense of providing benefits could rise much higher than projected.
Moreover, the favorable long-term projections depend in part upon the success of cost-control strategies in the Affordable Care Act that have yet to be fully implemented or tested. The Medicare chief actuary has warned that some of the assumed savings may not be feasible over the long term.
Buying time through incremental change has also left in place a dynamic that is transforming the federal budget into little more than an automated process of writing checks to individuals. Such transfer payments have grown from 56 percent of the budget in 1994 to 70 percent in 2014.
Federal investment spending has continued a decline that began before our report. According to the Office of Management and Budget, federal spending on major investment programs is now 2.7 percent of GDP and 12.8 percent of the budget – both historic lows. Forty years ago, those numbers were 4.1 percent of GDP and 22.7 percent of the budget.
We’re placing a growing burden on future workers and investing less in the economy that will be called upon to support that burden.
And this generationally irresponsible pattern will continue, absent major changes that alter the long-term trends rather than simply postpone a crisis.
We still believe that such changes can happen. For the sake of a stronger economy for future generations, they must. But the clock is ticking, and these issues largely were ignored on the campaign trail this fall. We can’t wait another 20 years.
J. Robert Kerrey was a Democratic U.S. senator from Nebraska from 1989 to 2001. John C. Danforth was a Republican U.S. senator from Missouri from 1976 to 1995.