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The Entitlement Squeeze

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from the magazine

The Entitlement Squeeze

There’s just no money for all the stuff government wants to do. Spring 2015

For all the promises made by politicians on both sides of the aisle, budget math makes clear how little room exists for new government spending. The federal budget is on autopilot. Spending for entitlements will soon crowd out most of what Washington does. Any new initiative that requires major financing is suspect.

The underlying budget realities are stark. Some 70 percent of all federal spending goes to entitlements—Social Security, Medicare, Medicaid, unemployment insurance, and the still relatively small (for now) costs of the Affordable Care Act (ACA). These spending flows continue to grow automatically; Congress doesn’t even debate them. Legislative discretion does come into play regarding the next-largest budget item—defense, at about 17 percent of the total—but even here, little room for maneuver exists, given past cuts and today’s deteriorating geopolitical situation. Interest obligations on outstanding federal debt eat up another 6.5 percent of the total. That leaves barely 6.5 percent of the budget for everything else Washington does— including education, infrastructure spending, and all the other things that the political class discusses and about which it makes its most lavish promises.

And entitlement spending promises to narrow the choices still further. For decades, through both Republican and Democratic Congresses and presidential administrations, entitlement-spending growth has outstripped the growth of the rest of the budget, steadily enlarging its share of the total. The rate of gain has slowed from time to time, but it has never paused for long, let alone declined. In five years, entitlement spending could command three-quarters of the federal budget. The swelling ranks of retiring baby boomers and the new spending obligations imposed by the ACA could push that percentage even higher.

Other realities will bring even more pressure to bear. Outlays for interest payments on the national debt will take a larger share of the budget—perhaps doubling to 13 percent within a few years—not only because the size of outstanding debt is increasing but also because the cost of financing the debt will rise. Until now, a relative drop in Pentagon spending has offset the impact of increased entitlement spending on the rest of the budget. Today’s 17 percent Defense Department share is a far cry from the 1960s, when national defense commanded as much as 50 percent of the federal budget. Even additional outlays for the War on Terror pushed the Pentagon’s spending share only as high as 20 percent—and only for a short time.

Washington has only two ways out of the entitlements squeeze. The first is for government to take more out of the economy, either through higher taxes or greater levels of borrowing. Neither Congress nor the public is likely to endorse such moves. The second alternative—enacting reforms that would slow or reverse the growth of entitlement spending—would be unpopular as well. But action can be postponed for only so long. Keep that in mind this year, and especially next, when political candidates unleash their usual array of promises and plans.

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