Entitlement Spending: A Growing Crisis

One of the more amusing lines in President Bush’s State of the Union Address last month was his call for yet another commission to study the problem of entitlement spending. Entitlements are programs that do not require annual appropriations. The money is paid out automatically to anyone who meets the eligibility criteria. Spending cannot be capped because people have a legal right to their benefits. Hence, spending for entitlements can only be reduced by changing the basic law applying to Social Security, Medicare and Medicaid.

There are two reasons why the Bush proposal cannot be taken seriously. First, he has shown contempt for the whole idea of federal commissions. He appointed a Social Security commission early in his presidency, which produced a solid, credible report. But its work was utterly ignored when Bush started his failed Social Security reform effort last year. A key reason for that failure, I believe, is that the effort was all speeches and sound bites, with no substance — not even a formal proposal that could be studied and analyzed.

More recently, Bush appointed a tax reform commission. It spent most of 2005 holding hearings and issued a report with options for fundamentally restructuring the income tax. Members of the commission assumed that he would announce a tax reform proposal in the budget or State of the Union Address. They were deeply disappointed that Bush simply ignored their work. According to press reports, he didn’t even thank the commission members for it.

Given this history, it’s hard to believe that people of stature will waste their time on yet another disposable commission report, especially when everyone knows that there is not enough time left in this administration to do much of anything meaningful. According to press reports, former Federal Reserve Chairman Alan Greenspan, who chaired a successful Social Security commission in the early 1980s, politely turned down the opportunity to chair this new commission.

The second reason why Bush’s call for an entitlement commission is laughable is because he is largely responsible for the growing crisis of entitlement spending. That is because he rammed a vast expansion of Medicare through a Republican Congress in 2003 that increased the unfunded liability of that program by almost 40 percent. According to Medicare’s trustees, the unfunded liability of Medicare is $68.1 trillion. Of that, $18.2 trillion is accounted for just by the new drug benefit.

By contrast, the unfunded liability of Social Security is just $11.1 trillion. This means that we could repeal the drug program, fund Social Security forever with no benefit cuts or tax increases and still cut $7 trillion off the national debt.

Historically, Republicans have opposed the creation of new entitlement programs because they always cost vastly more than estimated and they are so extremely difficult to control. The cost of the original Medicare program, for example, was seven times higher by 1980 than projected in 1965. And because the elderly, the primary beneficiaries of entitlement spending, are so politically powerful, only the bravest politician will even think about cutting their benefits. It’s easier to try to take food out of the mouths of hungry rottweilers.

It would be one thing if Republicans had won major reforms to the Medicare program as their price for the new largess. But no meaningful reforms were contained in the final legislation, in large part because early on Bush announced his intention to sign any bill, no matter what was in it. In the end, the Medicare drug program was enacted for one reason and one reason only: Republicans thought they were buying the votes of the elderly for re-election. That’s it.

Thus it is ironic that Republicans have garnered virtually no political support from this fundamental sellout of their principles. In part, that is because implementation of the drug program has been plagued by snafus. Seniors have had difficulty figuring out the program, many have lost drug benefits they previously had, and the states have been forced to spend millions to cover gaps in the program for elderly Medicaid patients, among other things.

So it comes as little surprise that surveys have found seniors turning against Republicans for the very benefit that was designed to buy their votes forever. According to a new poll from the Democracy Corps, only 25 percent of those over age 65 favor the drug program, with 53 percent rejecting it. This may explain why Bush neglected to tout it in his State of the Union Address.

There is little doubt that the drug benefit would fail if it came up again in Congress. I believe that Republicans would probably be better off politically if they had enacted a much smaller, less expensive and more targeted program. If they had simply done nothing, I don’t think they would be any worse off.