Mandatory Spending and the Future of Government

Progressives defend social insurance programs at every turn, and for good reasons: These programs, particularly Social Security and Medicare, are among the greatest achievements of government and have immeasurably improved the lives of Americans.

Increasingly, though, the great crusade to provide security to America's seniors is coming into conflict with another progressive goal: Sustaining government as a flexible agent of change with the resources to solve emerging problems.

That's because mandatory government spending, mostly on programs for seniors but also on interest payments, will increasingly compete with discretionary spending -- leaving less cash left over for new and bold initiatives. The obvious ways to offset this squeeze -- increasing tax revenues, cutting defense, and controlling healthcare spending, all of which I often advocate here -- can make a big difference, but the essential dilemma for progressives is still going to worsen as the Boomers retire: Do we mainly want government to do big things to chart the future, or fulfill past commitments?

Consider federal spending in 2011. According to the Office of Management and Budget, $1.96 trillion of federal spending mandatory was mandatory. Meanwhile, government took in $2.3 trillion in revenue. So even today, with few Boomers yet retired, the lion's share of federal taxes are already going to mandatory programs. Nearly all discretionary spending in 2011 was done with borrowed money.

Now fast forward: by 2030; the number of Medicare beneficiaries will rise from 47 million to 80 million, with Social Security beneficiaries also exploding. Even if we flatten healthcare spending starting now, we're talking huge new outlays of national wealth to pay for the Boomer's retirement.

Ditto interest payments on the debt. Right now, interests rates are phenomenally low -- to the point that the U.S. paid less interest on its debt last year ($202 billion) -- than it did in 1985, according to OMB data. But that will change. OMB projects that interest payments on our debt will more than double in the just the next five years, approaching half a trillion dollars in 2017, rivaling outlays on Medicare, and heading upward from there.

Now, as Dean Baker has pointed out, interest payments on the debt as a percentage of GDP are likely to be roughly the same in 2020 as they were in the 1980s and early 1990s -- just over 3 percent of GDP. That makes me feel better, but only a little. We're still talking about the interest burden doubling as a percentage of GDP over the next eight years and tripling in terms of actual cash outlays -- at the same time that the Boomers head to Florida in droves. (Or, if they are smart, someplace much cheaper like Central America.)

The point is not that America can't afford to pay for the retirement of the Boomers, as deficit hawks constantly claim. We can if we control healthcare spending and make modest adjustments in Social Security. Rather, the point is that it's going to be harder to find resources for big new domestic initiatives. Not impossible, but harder.

If we want government to do much more besides cut checks to seniors down the line, two things must happen. First, this country needs to raise taxes a lot more than is acknowledged, even by liberal Democrats. Just raising taxes on the wealthy won't be enough. We need to roll back the entire Bush tax cut, as I have argued here before.

Second, we need to confront inevitable trade offs between payments to seniors and investments in younger generations. The deficit hawks may go too far with their predictions of inter-generational warfare, but it's naive to imagine that there won't be any hard choices at all between priorities.

If we want a government that can do big things in the future -- like, say, respond to the devastating conquences of climate change or actually provide educational opportunity to all -- now is the time to start making the case for two very unpopular ideas: higher taxes on everyone and less generous social insurance programs for the elderly.