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March 31, 2008

Taking Back our Fiscal Future

By , and

Taking Back Our Fiscal Future (PDF)

This paper put together by top budget and policy experts affiliated with several major Washington policy research organizations, is a significant step towards tackling the growing and chromic problem of entitlement spending. As the paper explains:

"Despite our diverse philosophies and political leanings, we have found solid common ground. We agree that:

  • Unsustainable deficits in the federal budget threaten the health and vigor of the American economy.
  • The first step toward restoring budget responsibility is to reform the budget decision process so that Social Security, Medicare, and Medicaid--the major drivers of escalating deficits--are no longer on "auto-pilot."

The authors agree on several steps:

  • Congress should enact a real long-term budget for Medicare, Medicaid and Social Security that would limit their growth, take them off auto-pilot, and curb their current ability in the budget process to pre-empt funds from other types of programs, such as defense.
  • Congress and the President should enact long-term budgets for Social Security, Medicare, and Medicaid and be required to review them every five years. The rules for the five-year review must include a trigger or action-forcing device that automatically make changes when projected spending exceeds budgeted amounts.
  • The long-run costs of these three programs should be made visible in the budget at all times and considered when decisions are made.

The authors agree that certain myths are used as excuses for not tackling the entitlement problem. Among the biggest is that we can simply fix the problem by "rolling back the Bush tax cuts" and raising taxes to pay for entitlement promises. The authors agree that raising taxes to the European-style levels needed for that would "cripple the economy."

The paper finally summarizes the "options" often put forward for restructuring the long -term budget for Social Security, Medicare and Medicaid. These include privatization approaches, raising premiums and deductibles, and even raising payroll taxes. But the authors make clear that these are the options that should be debated, and that "members of our group disagree about the best way forward, and some would object in principle to some of the options." The purpose of the budget process changes is not to decide on a reform, "but rather to set in motion a process that will yield an outcome that ultimately only the people and their representatives can craft."

For papers on the entitlement problem authored by the Heritage participants in this group, see:

Butler, Stuart M. "Solutions to Our Long-Term Fiscal Challenges." Testimony before the United States Senate Budget Committee. January 31, 2007. http://www.heritage.org/Research/Budget/tst013107a.cfm.

Butler, Stuart and Alison Fraser. "Congress Should Reject New Taxes and Curb Exploding Entitlements." Heritage Foundation Web Memo, January 16, 2007. http://www.heritage.org/Research/Taxes/wm1313.cfm.

Butler, Stuart and Dan Mitchell. "What is Really Happening To Government Revenues: Long-Term Forecasts Show Sharp Rise in Tax Burden," Heritage Foundation Backgrounder, July 28, 2006. http://www.heritage.org/Research/Taxes/bg1957.cfm.

Butler, Stuart and Maya MacGuineas. "Rethinking Social Insurance." The New America Foundation, February 19, 2008. http://www.heritage.org/Research/Budget/wp021908.cfm.

Fraser, Alison. "A Better Measure of Long-Term Spending: FASAB Proposes Changes in Accounting for Social Security, Medicare," Heritage Foundation Web Memo, October 31, 2006. http://www.heritage.org/Research/Budget/wm1242.cfm.

Fraser, Alison. "Federal Budget Should Include Long Term Obligations From Entitlement Programs." Heritage Foundation Executive Memorandum, June 22, 2006. http://www.heritage.org/Research/Budget/em1004.cfm.

Taking Back Our Fiscal Future (PDF)


Key Charts


Federal Budget Deficit as a Percentage of GDP, 1962-2082


Federal Spending as a Percentage of GDP Under Current Law, 2000-2082

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