Saturday, March 28, 2009

Fixing Entitlements for a Fiscally Sustainable Future

“A billion here, a billion there, and pretty soon you’re talking about real money,” or so goes the famed quote from the late senator Everett Dirksen (R-Ill.). But recently--given the astounding figures presented in Geithner’s housing plan, President Obama’s budget, and annualized deficit projections by the Congressional Budget Office--a “trillion here, a trillion there” seems more appropriate. Regardless of their merit, current spending programs to fix our economy are only the beginning of a long-term budget crisis precipitated by Social Security, Medicare, and Medicaid; America’s so-called entitlements.

These entitlements threaten our generation with a fiscally unsustainable future. According to the Treasury Department’s Financial Report of the U.S. Government, our nation’s unfunded entitlement obligations have ballooned to $56 trillion--an estimated debt of $185,000 per American citizen.

Just how much do we spend on entitlements? In 2008 the U.S. spent over 40 percent of its federal budget--roughly $1.3 trillion--on them. But the situation will get worse. Projections that account for increases in health care costs, falling fertility rates, and advances in medical technology predict that by 2082 Social Security and Medicare will cost 18 percent of gross domestic product--roughly what the entire government costs today.

Under current law the government is legally mandated to fulfill its entitlement obligations; without reform, Americans will experience the elimination of important government programs, economically stifling tax increases, or both. Though leaders in Congress, including Paul Ryan (R-WI) and Jim Cooper (D-TN), and President Obama have shifted their focus to fixing entitlements, little has been done. A dialogue on real solutions fits within AIP’s priority of pursuing a prosperous future for our generation. But how do we do this?

We must build a political will to reform entitlements. Though poll numbers reflecting young Americans’ sentiments since the beginning of the financial crisis are not yet available, studies profiling our generation through 2006 provide a detailed outline of our priorities; entitlement reform was not one of them. In 2007, our generation favored approaches that privatized Social Security and provided universal access to health care. But, according to a Harvard Institute of Politics poll, however, health care was only the most important issue to 6% of 18-24 year olds. Social Security did not make the list, which was topped by the economy as the primary concern of 39 percent of young voters.

The government’s spending obligations are inextricably linked with the economy’s performance. Overwhelming entitlement costs mean less money for essential government commitments like education, foreign aid, and infrastructure spending. But perhaps more importantly, necessary tax increases will translate into less entrepreneurship and an unyielding economic climate for small businesses. Ensuring health care for everyone and saving Social Security without breaking the bank is possible, but we must renew the political debate.

One idea for doing this is to rein in costs and ensure health insurance for everyone by separating health insurance from employers and the government. Through personalized insurance funds (or vouchers, like Ezekiel Emanuel’s plan), the government can ensure that all Americans are able to purchase private policies--empowering individuals to choose tailor-made health care, maintaining the viability of private insurance companies, while reining in costs for the government. Additionally, Americans don’t want government-run health care: only 41% support replacing the current system with a government-run system. Simply put, Americans believe that a government-run universal health is unaffordable and will lead to rationed care, decreased innovation, and insolvent entitlements.

This is, of course, only the beginning of a dialogue that AIP will have on reforming our entitlements. Through smart entitlement reform we can allow Americans to choose personalized health care and retirement plans that suit their needs without bankrupting future generations. Our leaders have gotten us into this mess. It’s up to us to get ourselves out.

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