Can Entitlement Reform Squeeze Its Way into the Grand Bargain?

WASHINGTON – The upcoming debt ceiling battle promises to bring entitlement reform back to the fore, even if political rhetoric threatens to ultimately overshadow serious talk about sweeping changes to entitlement programs.

House Speaker John Boehner (R-Ohio) said recently that getting the House to agree to raise the U.S. debt ceiling would only come with a bipartisan deal to make cuts and cost-cutting changes to entitlement programs.

President Obama and Democrats want Republicans to back additional tax revenue as part of an entitlement-reform deal; Republicans respond that they have already let taxes rise on the rich and now is the time to control spending.

Entitlement programs, which largely comprise the government’s mandatory spending, refer to programs such as Social Security, Medicare, and unemployment compensation, and programs for low-income individuals and families, such as Medicaid and the Supplemental Nutrition Assistance Program.

Currently, about a third of the federal budget is actually appropriated, coming under some level of congressional control. This part of government spending is known as discretionary spending. The law specifies some eligibility rules for the remaining sixty-six percent of the budget, which means Congress cannot decide each year how much money should flow to any of the entitlement programs unless it changes the laws mandating such spending.

Sen. Ron Johnson (R-Wis.), an outspoken budget hawk and member of the Senate Budget Committee, said “we’re past the point” where Americans get back what they contributed to Social Security. Meanwhile, the government pays out more in Medicare benefits than every dollar it receives. This makes both programs unsustainable and the main driver of a ballooning debt burden, the senator said at an event on entitlement reform hosted by the U.S. Chamber of Commerce.

“In the '60s, you had 68 percent of the budget coming under some level of congressional control,” Johnson said. “If we don’t come to terms with our problem, in ten years only 24 percent of the budget will be appropriated, with 76 percent on autopilot. I come from the private sector. If you ran your business like this…that business would be bankrupt in no time.”

Earlier this year, senior White House officials told a group of Senate Republicans in a meeting behind closed doors that Medicare needed an overhaul. But in public appearances, the president has sounded a completely different message, Johnson said.

“Publicly, the only thing the president has said is that Medicare needs modest reforms,” he said. “We’ve got a program that spends over $575 billion, and in about 10 years it will be over one trillion dollars, one dollar going in, three dollars going out. That’s a program that needs more than modest reform.”

Johnson said that part of the problem in reining in spending, reforming entitlement programs, and other issues facing the federal government is that the government has grown so much in recent decades that lawmakers can no longer manage it.

“The federal government was never intended, it’s not designed, and it’s not capable of running 23 percent of the economy much less the 34 percent that we’re in the trajectory for,” Johnson said.

At the same event, Mitch Daniels, former Indiana governor and current Purdue University president, said government spending on Social Security and Medicare leaves less money for such things as university research, which, in turn, hurts economic growth.

“Investments in basic research on university campuses is a major driver of the innovation we need to grow as a nation, but it’s being squeezed by entitlements,” Daniels said. “Only a hundred years ago, the federal government was 2% of our economy. It’s grown steadily to about 23% this year, but the problem is the trajectory to 39% in thirty years.”

Daniels said that those who do not need Social Security, such as the very wealthy, should do without. He proposed increasing the age of eligibility, but not for those who already are receiving benefits, or for those who are close to retirement.