When historians look back on our present time, there's a good chance they will judge President Bush and the current generation of lawmakers by the adequacy of their response to the two overriding challenges facing America today. Did they adopt a winning strategy in the war on terrorism? And did they exhibit the political courage required to meet the fiscal consequences posed by the aging of the baby boomers? The first baby boomer will collect his/her Social Security check upon turning 62 in less than 700 days. Three years later, he/she will turn 65, enroll in Medicare, and the long national fiscal nightmare will begin.
President Bush promotes his administration's budget proposal to the Business and Industry Association of New Hampshire.
By now, all serious lawmakers and policy experts appreciate the contours of this challenge:
- Between now and 2030, the number of Americans age 65 and over will nearly double, from 40 to 78 million.
- Thanks to this completely foreseeable demographic development, and the equally foreseeable breakthroughs in medicine, spending on our three big entitlement programs - Medicare, Medicaid and Social Security - will explode. Medicare will grow annually at an annual rate of 9 percent, Medicaid 8 percent, and Social Security 6 percent. This trend, in the prescient words of the Comptroller General of the United States, is "unsustainable."
- At some point over the next 30 years, total federal spending will reach 40 percent of GDP. Add in a reasonable projection for the level of state and local spending - currently 12 percent of GDP - and today's lawmakers are looking at a future where government spending at all levels will lay claim to over half of the new wealth created each year. Most alarmingly, the single largest expenditure is likely to be the annual interest due on the national debt.
Every policy expert, regardless of his area of expertise or ideological orientation, ought to be alarmed at this bleak, but entirely predictable, future. Every lawmaker, regardless of his party affiliation, committee assignments, or ideological inclination, should wake up every morning with these alarm bells ringing in his ears.
When future historians open the archives, there will be no shortage of such warnings. The latest came last week when Josh Bolten, the federal government's top budget official, testified before the House Budget Committee. "Toward the end of the next decade," he said, "deficits stemming largely from entitlement programs such as Social Security and Medicare will begin to rise indefinitely." A fundamental overhaul of these and other entitlement programs is essential, he continued, because "no plausible amount of spending cuts in discretionary accounts or tax increases could possibly solve this problem."
Let us count the ways the Boomer retirements will threaten our future:
Thoughtful liberals such as C. Eugene Steuerle of the Urban Institute fret that "without an overhaul of entitlement programs or tax-revenue reform, the ever-expanding Social Security, Medicare, and Medicaid budgets will tighten the squeeze on other domestic spending." Steuerle's main concern is the future viability of education, nutrition, welfare, community development, and housing programs. "Programs for the politically disadvantaged," he believes, "wear stone slippers to the dance of budget legislation."
Steuerle's conservative friends are equally distraught, but for different reasons. They fear the remorseless upward trajectory of middle class entitlement programs will necessitate incomprehensibly large tax increases that would suffocate our economy and stifle the upward economic mobility that is the American Dream.
Joe Antos of the American Enterprise Institute and Tracey Foertsch, my colleague at The Heritage Foundation, took a long, hard look at the fiscal condition of just one of these programs - Medicare. Medicare's financial woes, they demonstrated, are no longer a distant theoretical threat, but now constitute a clear and present danger to our economy and, indeed, to our way of life.
In order to pay for all the Medicare benefits promised to current and future retirees over just the next 10 years, Antos and Foertsch calculate that Congress would have to impose an economically debilitating $2.7 trillion tax increase on American workers and businesses. That tax hike would require the equivalent of an immediate and permanent 4.3 percentage point increase in all personal income tax rates. A milder, but still significant, increase in the payroll tax that workers pay for their Medicare benefits would also be required.
Antos and Foertsch calculated the economic consequences of this tax increase and found that over 920,000 private sector jobs would be lost and Gross Domestic Product would plummet by more than $116 billion.
Covering the entire Medicare shortfall envisioned by the program's trustees through 2079 (a much more daunting challenge) would necessitate even larger tax increases and, not surprisingly, much larger job losses (2.3 million) and an almost unfathomable decline of over $190 billion in GDP.
Of course, because lawmakers must also address the unsustainable paths of Social Security and Medicaid, the scope of the economic Armageddon could be even worse.
National security experts also fear the consequences of the growth of middle class entitlements. My colleague Baker Spring points out in a forthcoming paper that since 1970 the ratio between defense and entitlement spending has flipped. In 1970, military spending consumed 8.1% of GDP, more than twice the proportion consumed by the major entitlements (3.9%). Today, defense spending is a mere 3.7% of GDP while the Big Three entitlements absorb fully 8.3% of economy.
Thoughtful lawmakers such as Missouri Senator Jim Talent, a member of the Senate Armed Services Committee, fear a repetition of the "procurement holiday" of the 1990s when the end of the Cold War led to a steep and prolonged decline in military spending. Those reductions came almost exclusively from the Pentagon's procurement budget. As Talent points out, after 1990 the average number of attack helicopters, battle ships, fighter aircraft, tanks, armored vehicles, and artillery purchased each year fell dramatically.
But, as former CIA Director Robert Gates noted: "History had not ended with the fall of the Soviet Union. It had just frozen before that." "Now," he added, "it is thawing out with a vengeance."
That thaw is most evident in China's heated pursuit of military dominance in the Pacific. Whether it is China's acquisition of nuclear-powered attack submarines, Russian-built missile destroyers, amphibious assault ships, advanced fighter aircraft or land-attack ballistic missiles, it is clear that the People's Republic has closed the technology gap with the U.S. and developed military capabilities that could counter our influence throughout East Asia. The spread of Islamic terrorism and the attacks of September 11th, moreover, highlighted the urgency of fundamentally transforming our military, a mission that will also require substantial new resources.
The inevitable budget crunch stemming from the Boomer retirements could, as Spring puts it, "jeopardize our nation's ability to wage war over the long term. Entitlement reform," he concludes, "is a national security issue."
One wonders whether, decades from now, future generations of Americans will shake their heads in amazement at the enduring image from last week's State of the Union Address when congressional Democrats jumped to their feet in a state of rapture, wildly applauding Bush's acknowledgement that his modest effort to reform Social Security failed. How, they may wonder, could a previous generation have been so cavalier about such a predictable fiscal calamity?
The other great challenge confronting Bush and Congress concerns the war against Islamic terrorism. Bush finds himself in much the same position as President Harry Truman during the early years of the Cold War. Then, Truman and a reliable bipartisan coalition on Capitol Hill resisted the isolationist impulse that has recurred throughout American history and embarked on a policy of aggressive engagement designed to check (and ultimately reverse) the spread of Soviet Communism.
The institutions that served us so well during the long and uneasy encounter with the Evil Empire - the Truman Doctrine of containment, the North Atlantic Treaty Organization of mutual defense, the Marshall Plan of economic assistance to beleaguered post-War Europe, and the economic liberalization that resulted from the General Agreement on Tariffs and Trade (GATT) - were all created during the first five years of the Cold War.
Since the September 11 attacks, Bush, like Truman, has been charged with redesigning old institutions and creating a few new ones to lead us through this new "Long War." The Patriot Act, a new and well-funded Department of Homeland Security, a thorough overhaul of our intelligence-gathering capabilities, the ongoing transformation of our armed forces, a renewed commitment to free and open trade, and the recent reorganization of the State Department to reflect America's new strategic vulnerabilities, are all essential elements of a successful strategy to defeat Islamic fascism.
Unlike Truman, though, Bush faces a determined, indeed unyielding, opposition party. He recently contrasted the current partisan snake pit with the bipartisan comity on national security issues that prevailed during the presidencies of Roosevelt, Truman, Kennedy, and Reagan. He warned that today's intense partisanship on matters of national and homeland security carries negative long-term consequences, noting: "Our own generation is in a long war against a determined enemy, a war that will be fought by presidents of both parties who will need steady bipartisan support from the Congress."
During his State of the Union, Bush called for the creation of a bipartisan commission "to examine the full impact of baby boom retirements on Social Security, Medicare and Medicaid." Given the narrow Republican majorities in Congress, an approach that forces all sides to acknowledge the extent of the problem and propose solutions may be Bush's last best chance to establish a positive legacy on this challenge.
Sadly, it is hard to envision a comparable approach to defuse the bitter partisanship that has accompanied our response to Islamic fascism.
Will future historians dub this the Era of Partisanship and debate why this generation of lawmakers never quite elevated themselves from the fever swamps of partisan warfare and concentrate on the two overriding challenges of our time?
Mike Franc, who has held a number of positions on Capitol Hill, is vice president of Government Relations at The Heritage Foundation.
First appeared in The San Diego Union-Tribune