The House is scheduled to vote tomorrow on a constitutional amendment to require the federal government to balance its budget every year. Lawmakers would be more honest if they just called it a Constitutional Amendment To Cut Benefits For Old People. Because that’s who’d likely bear the brunt of the spending cuts needed to comply with such a balanced budget requirement.
To understand why, bear with me while I walk through some numbers. The amendment would take effect in the fifth year after it is ratified so let’s pretend it is adopted this year and first applies in 2023. In a report released this week, the Congressional Budget Office projected the deficit that year will be nearly $1.3 trillion. That’s how much Congress would have to raise taxes or cut spending in that one year alone to comply with the Constitutional requirement.
How to balance the budget
Where would it come from? CBO projects total spending in 2023 will reach $5.5 trillion. Of that, about $2.5 trillion, or about 45 percent, will be spent on Social Security, Medicare, and the Medicaid’s long-term supports and services. To put it another way, if programs are cut relative to their share of government, Social Security benefits would have to be slashed by about $300 billion, or by one-quarter. Medicare payments to providers would have to be slashed by about 20 percent—or about $200 billion.
Alternatively, Congress could preserve Social Security, Medicare, and Medicaid long-term care. But it would have to nearly wipe out the rest of the government, including national defense, law enforcement, education, support for families and the environment, and all the rest.
Or, Congress could just raise taxes by about 25 percent. How much is that? If lawmakers completely reversed all the tax cuts they just passed, they’d be about 10 percent towards their balanced budget goal in 2023.
A message vote
Of course this is all absurd. A Congress that just finished cutting taxes by more than $1 trillion over the next decade while increasing spending by $1.3 trillion can’t, with a straight face, pass a balanced budget amendment. And it won’t. The House may approve such an amendment but it will die in the Senate.
And, of course, lawmakers don’t really want to pass this bill. It is, as my fellow Forbes.com columnist Stan Collender writes, nothing more than a classic message vote: A way for some Republicans to say they are for a balanced budget despite their recent votes to cut taxes and boost spending.
But beyond the foolishness, the balanced budget debate raises a serious issue: Are we ever going to confront the needs of our aging population?
And they are significant. Twenty years ago, federal government spending represented about 18.5 percent of Gross Domestic Product (GDP). Of that about 7 percent, or roughly one-third, went to programs for seniors. In 2023, the federal government will spend about 22 percent of the nation’s economic output. And about half will go to older adults.
Even as the government spends more, tax cuts continue to shrink the resources it needs to pay the bills. Courtesy in part of the recent tax reductions, federal revenues in 2023 will be equal to about 17 percent of GDP, about what they were last year. You don’t need to be either a math whiz or a budget geek to know you can’t buy $5.7 trillion in goods, services, and benefits with $4.4 trillion. You’ve got to borrow the difference, and spend a growing share of the nation’s resources on interest on the debt.
What can we do, besides waste time debating ridiculous Constitutional amendments?
We can redesign programs such as Medicare and Social Security for future retirees. Among the ways: Reduce net retirement benefits for high-income seniors, lower drug and other costs for Medicare, allow Medicare to provide some long-term supports, and shift some long-term care from Medicaid to insurance.
Congress can man up, recognize that an aging population inevitably will cost society more, and raise taxes.
Finally, politicians can, for once, have an honest conversation with the American public about the costs of an aging society and how we are going to pay them.
Do I have any hope that any of this will happen soon? Nope.