The Brookings Institution, one of Washington's prestigious think tanks, issued a study the other day on solving the nation's budget problems -- a study that paradoxically helps explain why we don't fix them. The authors, all prominent policy wonks, would surely protest that they are among the loudest advocates of addressing the budget stalemate. True. But the way they go about it makes the stalemate more, not less, likely to continue.
Let me say that, in many ways, "Restoring Fiscal Sanity 2005" is a swell report. It's a lucid and fact-filled budget primer. It proves, if proof were needed, that an aging society is the central budget problem and that almost everything else is a footnote. Indeed, the report usefully shows that, depending on how rapidly health costs grow, the budget outlook goes from abysmal to catastrophic.
Driven by new medical technologies, annual health spending has increased about 2.5 percentage points faster than national income (gross domestic product) since 1960. Standard budget projections assume that growth in health spending will slow to "only" 1 percentage point higher than GDP growth. If that happens, spending on Medicare -- health insurance for people 65 and older -- and Medicaid in 2030 would still double from today's 4.2 percent of GDP to 8.4 percent. But if health spending rises at its historic (faster) rate, then Medicare and Medicaid would nearly triple to 11.5 percent of GDP.
"It would be necessary to nearly double the Medicare payroll tax (now 2.9 percent of all wages and salaries) and increase all personal income tax collections by more than 70 percent to cover Medicare and Medicaid costs," says the study.
Now, let's add Social Security. It is projected to rise from today's 4.2 percent of GDP to 5.9 percent in 2030. In 2005, all federal spending -- the entire budget -- is 20 percent of GDP, and Social Security, Medicare and Medicaid together equal 8.4 percent of GDP. By 2030, those three programs alone would cost somewhere between 14 percent of GDP (lower health spending) and 17 percent (higher health spending). Inescapably, we get one or all of the following: exploding budget deficits; staggering tax increases; draconian cuts in other government programs; and abrupt reductions in services for the elderly.
So, what does the Brookings study advise? Well, nothing. It presents various budget "options" -- larger government, smaller government and so forth -- and possible tax increases or spending cuts. It implores Americans "to make hard choices about what they want the federal government to do and how they want to pay for it."
Asked why Brookings' experts couldn't craft a plan, co-editor Isabel Sawhill said: "That requires values judgments -- and we don't all agree among ourselves." But if people who think constantly about government -- and don't face elections or angry voters -- won't make the hard choices, why should politicians?
We need a new public consensus to reflect new realities. Because all choices are hard, they require a larger moral and social framework that makes them legitimate. Big questions arise. With longer life expectancies, who's "old"? How do the needs of the old compare to society's other needs? How high can taxes go without slowing economic growth?
My views are oft-stated: raise eligibility ages, trim Social Security benefits for wealthier retirees, make the elderly pay more of Medicare's costs. Americans should work longer to reflect longer life expectancies. Even so, taxes will have to rise. The alternative is a society that's unjust to the young, vulnerable to economic stagnation and too stingy with other national priorities.
Those with competing views should make their case. If the Brookings experts couldn't agree, two teams might have laid out contrasting visions. The political role of places like Brookings is to clarify choices by voicing ideas that may be hard for politicians but, once broached, become more respectable. That's the way to a new consensus. Thinking small -- treating the budget problem to an accounting exercise -- won't get us there.