As we approach yet another federal government showdown, it’s hard to find politician who will discuss the biggest driver of the federal deficit - entitlement spending. Long the proverbial third rail of politics, spending on Social Security, Medicare, and Medicaid. These entitlement programs for the elderly and low income are largely growing because of demographic factors and the cost of healthcare, unanticipated when the programs were designed. Let’s take a quick look at the budget to understand where we are and where we’re going.
Here’s a snapshot of federal spending for the fiscal year to date, straight from the US Treasury.
Social Security, Medicare, and “health” (primarily Medicaid and health insurance subsidies) consume about 51% of the federal budget. Interest payments on the federal debt eat another 11%. The current debate in Congress revolves around the remaining 38% - defense spending at 13%, VA funding and benefits payments at 5%, and everything else at 20%.
The federal deficit is estimated to be about 6% of the total budget for the fiscal year. To balance the budget solely on non-defense and non-VA “discretionary” spending would mean cutting roughly 30% of that spending. Completely eliminating the three agencies then-presidential candidate Rick Perry suggested - Commerce, Education, and Energy (which he later led), would only save about 4% of the budget, or 2/3 of the deficit. Eliminating all federal transportation spending, including highway funds, air traffic control, shipping and rail regulation would only gain us 2%, or 1/3 of the deficit. Eliminating the entire federal court and prison system only nets 1%. Totally eliminating all veterans benefits would come close, but still leave a 1% gap. Halving the defense budget would just barely eliminate the deficit. And, of course, none of these are realistic options.
What Next Week Will Bring. While it’s tempting to say that the far right Republicans driving the shutdown are just crazy, there is a method to their madness. Like personal debt, federal debt limits our ability to give our children and grandchildren a functional governmental system the can respond to the challenges that will arise in their day. Keep in mind that we are already paying almost twice the amount on interest on past debt as we are borrowing each year to maintain our existing spending. It’s not crazy to believe that the federal government should have a sustainable trajectory over time. It is a bit insane to believe that Americans will support the kind of cuts necessary to balance the budget just on the 20% of the budget consumed by non-defense discretionary spending.
That being said, the Freedom Caucus has the ability to shutdown the government because they have the power to unseat the Speaker of the House. Speaker McCarthy’s deal to win the gavel of the House allows just one of them to make the motion to “vacate the chair” and to depose him if only 5 total Republicans agree on the vote on the motion. The logical way around a government shutdown is for the Speaker to recruit Democrats to support a “clean” continuing resolution (CR) that allows the federal government to continue operating while the House hashes out its spending bills. Democrats would certainly agree to a clean CR. However, the Freedom Caucus has made it clear that recruiting Democratic votes will cause them to file the motion to vacate the chair, meaning that McCarthy would then have to give concessions to Democrats to recruit the votes to keep him in the speakership. While that may eventually happen, it is unlikely to happen in the next few hours. We’re headed for a shutdown.
Where We Should Go. Reasonable minds should come together to start the process of budget reform and pass a rational budget with some modest cuts. Entitlement reform is the work of months or years, not days, and certainly won’t happen before the 2024 election. Ideally, a commission would meet over the next year and present a proposal in the lame duck session between the election and the swearing in of the new Congress. Whether or not President Biden wins re-election, he will never again have to face the voters. With many legislators also leaving, there will be a brief window where rationality is ascendant over political gamesmanship. In a perfect world, the bitter tonic of working across the aisle to pass hard, but necessary, legislation would lead then lead those who remain in office to a future where they once again prioritize the needs of the people over their own ambitions.
Where We Will Go. Political courage is a rare virtue in these times, not least because the voters rarely reward it. While it’s easy to blame the dysfunction on the “crazies in the other party”, we do a poor job of policing zealotry in our own parties. It’s not enough to vote for people who share our values. We have to vote for people who accept the hard truths of governing, who share our values, and are willing to work with those who do not. Paraphrasing HL Mencken, because we do not yet embrace this cooperative imperative ourselves, we’re likely to get the dysfunctional government we deserve, instead of the deliberative one we need.
In the present moment, this means the shutdown is likely to be prolonged and to result in, at best, an interim settlement. Under the terms of the debt default agreement from earlier this year, failing to pass all of the federal government funding bills by the end of the calendar year will result in 1% cuts to VA, defense, and non-defense discretionary spending. These cuts will be unpopular and only reduce the deficit by less than a tenth of its value. In the wake of this likely outcome, I do not expect that we will take an introspective look at the drivers of our current unsustainable budget trajectory. Instead, we’re likely headed toward another round of recrimination and finger-pointing across the aisle. If you’d like that to change, consider supporting candidates in the 2024 primaries who embrace hard truths of governing and the need to collaborate, rather than partisanship and the blame game.
The views expressed herein are my own and not necessarily those of any of my employers, past or present.
In response to a common theme, yes, it will take revenue as well as cuts. Yes, defense spending should be cut, mostly by implementing reforms that DoD has already advocated for, like retiring legacy weapons systems and Cold War excess base infrastructure. No, I don’t advocate cutting existing SS benefits, but I expect that we will have to constrain their growth in the future.
There seems to be a lot of confusion around my use of the term "entitlements". While I appreciate that some folks have negative connotations for the word, in this context, it just means non-discretionary spending. For instance, people who qualify for Social Security payments are entitled to them in the budget, while an example of a discretionary expenditure is the purchase of an F-35. When I talk about "entitlements reform" I am just referring to changing the structure of those programs going forward - through new revenue, cuts, or whatever else Congress chooses to do. I'm not really getting into any detail about that in this article about that.