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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.

At the same time, Daniels says those older Americans need to help find a solution and take the financial burden off the backs of younger Americans. He admits the problem is serious, but there is a way to fix the situation.

“We are still above water. We do have the opportunity. We don’t have to dream that we can somehow do it all at once. We don’t have to do that. Maybe we start with a few changes that people can absorb and understand,” Daniels said.


Both Daniels and Johnson think part of the problem is people have been misled to believe they are only taking out what they put into the system. They say the truth is Americans are taking out much more, at the cost of future generations.

“They think it’s their money that they put in a little box somewhere, and they’re just getting their own back, when in fact they’re getting huge multiples of anything they put in there,” Daniels said.

The president included some cuts to Medicare and Social Security in his 2014 budget proposal, hoping to bring Republicans to the table and negotiate a “grand bargain.” The president’s budget, however, failed to convince Republicans that the White House is serious about entitlement reform, while at the same time angering some Democrats for even considering any sort of cuts to entitlement programs.

In spite of talk of reform as part of the budget ceiling negotiations, reforming entitlement programs still means very different things to Republicans and Democrats, and the two sides remain far apart on how to deal with Social Security and Medicare reform.

House Republicans have repeatedly voted to turn Medicare into a voucher-style program, but only for Americans younger than 55, such that younger generations would be subsidizing baby boomers. So far, Democrats have avoided talking about making any major changes to Medicare.


In 2011, Sen. Ron Wyden (D-Ore.) infuriated some fellow Democrats by teaming up with Paul Ryan (R-Wis.) to write a Medicare reform plan. The senator eventually distanced himself from the proposal, after 2012 presidential candidate Mitt Romney used it to tout Ryan’s willingness to reach across the aisle.

The president has been criticizing Republicans for not talking about entitlement reform and instead focusing on defunding the Affordable Care Act.

“They are not talking now about spending cuts,” Obama said. “They are not talking about entitlement reform. They are not talking about any of that. Now they are talking about something that has nothing to do with the budget.”

The Congressional Budget Office (CBO) said that U.S. public debt will increase to 100 percent of the nation’s GDP in 25 years if no action is taken to stabilize it. Near-term deficits are shrinking due to revenue growth from a recovering U.S. economy and a January tax increase on the wealthy, but this is not enough to overcome the costs associated with the aging baby boomers.

The CBO also warned that if Congress does not take any action entitlement spending would increase to 14 percent of GDP, or twice the average over the last 40 years, and the annual deficit would grow to 6.5 percent of GDP by 2038.

Sen. Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, said the CBO’s report should serve as a call to action to take up meaningful structural entitlement reform as a part of the debt ceiling negotiations.


“The White House would like the world to think that the nation’s debt isn’t a problem – when, as CBO says, our debt, fueled by the rapid growth of our entitlement programs, is on an unsustainable path. The White House would like everyone to believe that we just need a little more revenue, when CBO found that revenue will be higher than it’s been over the past four decades,” Hatch said.

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