In its effort to rein in the federal government's huge budget deficits, Congress finds itself running harder and harder - and losing ground.
Since 1982 Congress has enacted six major laws to cut spending or increase
revenues. Yet the deficit for the current fiscal year, we are now advised, will probably exceed $220 billion, a new record. With the fall elections approaching, there is now a real question whether the deficit target for fiscal 1987 will be met.The reason our lawmakers find themselves on this treadmill is because they've refused to face up to the government's No. 1 budget problem - the exploding costs of entitlement programs.
Over the past 15 years, the federal government has taken a bigger and bigger bite of our gross national product. The increase is a direct result of the cost of entitlement programs - up more than sixfold since 1970 - and the rising cost of servicing our national debt. These are costs that become built into the government's expense base and keep growing at a faster and faster rate, like a huge snowball. Each year's increase adds to the next year's increase.
Most people have no idea how big entitlement programs are or how fast they're growing. Among the largest of these programs are Social Security, Medicare, Medicaid, military and civil service retirement programs, veterans' programs, and food stamps.
Nearly 70 million people are beneficiaries of at least one entitlement program. That's almost one out of every three Americans. Many people are beneficiaries of more than one program.
Last year the cost of these programs amounted to $400 billion - more than half of all the revenues the federal government collected. Most of this money goes to non-means-tested programs benefitting middle- and upper-income people. Since federal retirement programs are financed basically on a pay-as-you-go basis, few funds have been set aside to provide the benefits promised. As a result, the unfunded liability of Social Security and other federal retirement program now exceeds $6.7 trillion, making our national debt look like small potatoes.
There are several reasons why the costs of these entitlement programs are soaring. More and more people are drawing benefits as life expectancy rises and the programs mature. Health-care costs have skyrocketed. Automatic cost- of-living adjustments, tied directly to the Consumer Price Index, keep jacking up benefits.
Not long ago Social Security was on the verge of bankruptcy. The reason: Over a four-year period, benefits based on the CPI went up 35 percent faster than workers' wages, which pay for the benefits.
The 1983 Social Security bill, based on recommendations of the National
Commission on Social Security Reform, went a long way towards restoring the
financial credibility of that portion of the program providing retirement, disability and survivor benefits. But it didn't solve the problems of Medicare - and it further increased Social Security taxes. The growth of Social Security (including Medicare) and other entitlement programs has had an enormous impact on the federal budget. It is the core problem in trying to bring expenditures and revenues back into some sort of balance.
Members of Congress are well aware of this. But they've left entitlement programs largely untouched because each program has a huge, politically active constituency. In fact, despite powerful pressures to cut spending, Congress has moved in advance of the fall elections to favor beneficiaries of Social Security and other entitlement programs with a cost-of-living adjustment in January even though the rise in the CPI is expected to be less than the 3 percent minimum required by law for such an adjustment.
By granting this unwarranted increase, Congress is once again putting the pursuit of votes ahead of fiscal responsibility. Almost no private pension
plans are fully indexed to the CPI. The cost and uncertainty involved are just too great. Moreover, in the case of Social Security, current beneficiaries are already receiving benefits many times greater than what they contributed to finance the program. Future beneficiaries won't be as fortunate when they retire because they are paying Social Security taxes that are far higher than in the program's early years.
Getting rid of the government's huge budget deficits requires sacrifices by every segment of our society - including entitlement program beneficiaries. If it's clear the costs of deficit-reduction are being borne by all, most people would be willing to accept a reasonable share of the burden.
Other reforms are also in order. Social Security retirement benefits should be taxed in the same manner as income from private pension plans. If this were done, all benefits received in excess of an individual's contributions to Social Security would be subject to federal income taxes. Low-income people would still pay no taxes.
Taxing Social Security benefits in this manner would not only provide the government with added revenue but would be much fairer to younger people, who are paying the bills for the windfall realized by current Social Security beneficiaries.
Such a policy would also make it possible to eliminate the Social Security retirement earnings test, a restriction that drives many retirees into the underground economy and discourages millions of other from remaining in the work force.
Let's face it: Huge deficits still threaten the future of our economy. That threat will not be eliminated by political pretense or sleight of hand. As it becomes harder and harder to meet deficit-reduction targets, our political leaders are going to have to face up to the entitlements problem - and the sooner they do, the better.