The Sequester is a Bad Substitute for Entitlement Reform
Without action by lawmakers to replace or eliminate them, the sequester cuts now in effect are anticipated to significantly reduce spending over the next fiscal year. The sequester cuts are better than nothing, but they’re poor policy because they are frontloaded and also don't affect the largest driver of future federal spending: entitlement programs.
Georgetown University Professor Harry Holzer and Brookings Institution Senior Fellow Isabel Sawhill discuss in an op-ed in the Washington Post how the sequester is likely to harm economic growth in the short term, and why entitlement reform should be our focus both in the short and long term. While entitlement reform may be a difficult subject, failure to look at our entitlement programs may be pushing deficit reduction into areas of investment and research, doing more harm than necessary. They write:
This self-inflicted wound to the economy and to jobs makes no sense. If anything, we should be using this period, when workers are underemployed and firms’ physical plant and financial resources are underutilized, to improve productivity by investing more in infrastructure and job training.
At the same time, those who argue that we can put off any serious discussion of debt reduction for a number of years — because of the temporarily stable debt-to-GDP ratio projected for 2015 to 2022 — understate the dangers that loom just beyond this period. The aging population and the growth of health-care costs make enacting reforms to entitlements imperative. Enacting them now would help the economy by reducing uncertainty. This would also instill more confidence in government, give people time to adjust and release the pressure on the small portion of the budget that so far has absorbed virtually all of the cuts.
While entitlements have mostly been spared in the sequester cuts, they account for a large portion of federal expenditures and are only going to become more expensive in the decades to come due to demographic pressures and escalating health care costs. Sequestration will not fix our long-run deficit problem nor make our retirement programs sustainable. Most of all, we may be missing the chance to improve the efficiency of these programs.
Social Security and Medicare alone cost the federal government about $1.3 trillion last year, accounting for more than 37 percent of federal spending; they are slated, along with interest on the debt, to absorb virtually all currently projected federal revenue within the next several decades. In contrast, all nondefense discretionary spending — which includes outlays on education, job training, transportation, public safety, research and many other growth-enhancing programs — amounted to only 17 percent of the budget, and they will continue shrinking each year.
Given that Americans have always resisted paying high taxes — and we see little sign of that viewpoint changing — what will happen to other priorities as our spending on retirement programs soars? Even if revenue rises, how can we possibly begin to fund the investments — in early-childhood health and education programs, K-12 reforms, effective workforce policies, improvements to crumbling infrastructure and the advancement of science — that are so badly needed to generate broadly shared economic growth? For how long will we continue to sacrifice investments in our nation’s children and youth, as well as its future productivity, to spend more and more on the aged?
Our preference is to restructure the delivery of health care so that it delivers the same benefits in less costly ways. Growth in health-care costs has slowed over the past few years, and the Affordable Care Act may bring further progress. But such changes are likely to be insufficient, requiring some restrictions on eligibility or expenditures. Asking affluent seniors to pay more for their benefits would be a good place to start.
Hopefully, lawmakers can find a solution that allows us to care for an aging population adequately while also controlling government expenditures on entitlement programs in order to maintain our fiscal health and other national policy priorities. There are much smarter reforms to be made than the sequester cuts.
The full op-ed can be found here.