“We’re going to have to get back next year at entitlement reform, which is how you tackle the debt and the deficit. Frankly it’s the health-care entitlements that are the big drivers of our debt…that’s really where the problem lies, fiscally speaking.”
— Paul Ryan, Dec. 6, 2017 on a talk radio show.
Amazing. You have to give Ryan credit for consistency and a kind of brutal Republican honesty. Within weeks of pushing a huge tax cut for corporations and the wealthy, he’s basically saying Republicans plan to pay for that by making cuts to Social Security, Medicare and Medicaid.
Ryan’s “Roadmap for America” laid it all out in 2008: privatize Social Security, transform Medicare into a premium support plan, and block grant Medicaid.
Of course, Ryan is correct about these programs from a “fiscally-speaking” point of view. The three do make up the lion’s share of the federal budget and their current rate of growth is unsustainable. Come 2035 and beyond they would start to gobble up almost the whole federal budget. The three programs will comprise about 50 percent of the $4.1 trillion federal budget in 2018.
And here’s a whooping number for you: Social Security, Medicare and Medicaid will cost the government $28 trillion through 2027.
But let’s be very clear about what is happening now that could set a dangerous precedent for the future. The Republican-led House and Senate, with the support of the Trump administration, have passed tax reform bills that primarily cut taxes for corporations and people making over $150,000 a year.
As I explained in Part 1 of this series on the tax bill and health care, those cuts will increase the annual federal budget deficit every year over the next 10 years, adding a projected $1 trillion to $2 trillion to the nation’s debt by 2026 (8 fiscal years). And if economic growth lags or the economy enters a recession, the deficits could be much larger.
Our nation’s debt now stands at $20 trillion and the interest payment we (taxpayers) make on it every year is projected to be the fastest growing federal expense over the next decade.
You read that correctly: servicing our debt will rise at a faster clip than spending on Medicare, Medicaid and Social Security. Payment on the debt is projected to reach $787 billion by 2026 and in that year comprise 12.2 percent of the federal budget, up from 4 to 7 percent in recent years.
Moreover, the nation’s debt load is now 100 percent of our GDP. The only other time it’s been that high was right after World War II.
Economists of all political stripes have raised yellow warning flags about this for several years. Republicans used to wave those flags, too. But it’s now clear that if the purpose of legislation is to deliver tax cuts to the rich and corporate America—whose profits have been at record highs over the last three years and whose political donations are treasured—deficit spending and adding to the debt appear to be completely acceptable.
Here’s the thing, though: Social Security, Medicare and Medicaid are what the federal government, in large part, is supposed to do. It’s the same in other industrialized nations: retirement support for the elderly and health care are the big ticket items.
In the U.S., these core programs help 120 million mostly poor and middle-income people pay for the roofs over their heads, buy food and necessities, and get health care. All are very popular programs. For example, a recent Pew Survey found that 94 percent of Democrats and 85 percent of Republicans oppose cutting Medicare.
Yes, of course, spending on Medicare and Medicaid (and all of health care!) needs to be restrained—THE major financial challenge our nation faces. But the health coverage provided by these programs help people directly and profoundly.
And we paid for these programs! Targeted taxes payroll and income taxes (federal and state) fund these programs.
In contrast, interest payments on excessive government debt is non-productive, a waste. This is no different than it would be for a family with excessive credit card, auto loan and home equity debt. (A reasonable mortgage is different).
Imagine, for example, a family of four with an after-tax income of $60,000 a year ($5,000 a month) that has run their non-mortgage debt up to $100,000, requiring a monthly interest payment of $700 to $1,200 on top of their mortgage of $1,800. This family is in over its head and will have trouble saving for college, emergencies, and retirement.
That’s exactly where we are as a nation.
In the short-term, cuts to Medicare could be automatic. Under previous legislation, if the deficit reaches a certain point mandatory “offsets” are triggered. In 2018, that could be $25 billion for Medicare, according to CBO and other projections. For obvious political reasons, lawmakers are pledging to override those “pay-as-you-go” triggers. But for how long will they do that?
President Trump—who during the 2016 campaign repeatedly pledged to protect Social Security, Medicare and Medicaid—concurred with Ryan last week, saying that he and Congress would in 2018 “tackle welfare programs.”
Initial media reports initially assumed he meant Medicare and Medicaid. But over the Dec. 9-10 weekend, the Trump administration let it leak that it is preparing an executive order that mandates a “top-to-bottom review” of food stamps, housing benefits—and Medicaid.
GOP lawmakers are said to be crafting legislation to make it more difficult to qualify for those programs.
The next piece is this series with discuss the impending end of the individual mandate and the debate over what will replace in 2019 and beyond.
A House-Senate conference committee reached agreement on the tax bill on Dec 12. Repeal of the penalties that accompany the mandate were, as expected, included. That essentially neuters the mandate—although notably it leaves the mandate as policy technically in place. Thus a future Congress could, in theory, more easily re-impose the tax penalty.
One note on the repeal of the penalties that bears on the subject of this blog: the Congressional Budget Office (CBO) projects that doing so will save the federal government around $300 billion between 2018 and 2027, as a result of lower federal costs for the ACA premium tax credits and Medicaid. That’s in part because millions fewer people will buy health insurance. Notably, there’s dispute around these numbers, but more about that next time.
The point for now is this: here, too, Republicans are cutting taxes on companies and the rich and offsetting the loss of income resulting from that by reducing the number of people with health insurance (as well as raising the price of health insurance in the individual market). It’s that simple. It’s that brazen.
Steven Findlay is a journalist based in Washington, DC.