Obama’s deficit promise won’t be easy to keep
A likely topic in his address Tuesday, the long-term budget gap is largely caused by popular entitlement programs.
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Recent spending has added to the deficit, of course. But the causes of the long-term gap are many and varied, and they include the spending and tax decisions made during the two terms of President Bush, under this analysis.Skip to next paragraph
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“The stunning shift to deficits from the budget surpluses of a decade ago has accelerated in the past year as the recession took hold, but the transition began many years ago,” write Gale and Auerbach.
Stimulus not long-term burden
According to Robert Greenstein, the executive director of the Center on Budget and Policy Priorities, the stimulus package isn’t the cause of the long-term deficit problem. That bill only adds about 0.1 percent to the long-term fiscal gap between Uncle Sam’s income and expenditures.
Nor are entitlement programs in general the problem, Mr. Greenstein told President Obama’s fiscal responsibility summit on Feb. 23.
Instead, the projected increases in federal spending in coming decades as a share of the economy are due entirely to the projected growth of the biggest entitlements: Medicare, Medicaid, and Social Security. In turn, those are becoming more expensive due to demographics – the retirement of baby boomers – and rising healthcare costs.
And between demographics and health costs, it is the latter that is most important, in terms of the deficit. Partly that is because the flood of retiring boomers will eventually ebb, but ingenuity and breakthroughs in healthcare will not, making healthcare inflation certain.
When it comes to the deficit, “the single biggest factor is rising healthcare costs, not just in Medicare and Medicaid, but throughout our healthcare system,” Greenstein told the fiscal summit.
Hard fix for healthcare
That’s a daunting problem, because healthcare is an explosive political issue. Healthcare inflation as a whole must be restrained, said Greenstein, because any attempt to curb Medicare and Medicaid alone could lead to rationing of care, or large shifts in costs to private sector health systems.
Fixing Social Security, by contrast, is a relatively easy technical problem. It will require some combination of marginal changes in retirement age, rate of increase of benefits due to the rising cost of living, and initial benefit calculation.
Politically speaking, this has been dangerous in the past. But the current economic crisis may at least improve the changes of a fix for Social Security, according to budget expert Alice Rivlin of the Brookings Institution.
“The crisis may have made Social Security less of a political ‘third rail’ and provided an opportunity to put the system on a sound fiscal basis for the foreseeable future,” Ms. Rivlin told a Senate hearing last month.