By Alan W. Dowd
Most of us, from a very young age, are taught about saving for a rainy day. In that same vein, President John Kennedy reminded Congress and the American people that “The time to repair the roof is when the sun is shining.” We don’t know much about the consequences of the COVID19 pandemic, but one thing is obvious as this public-health crisis triggers an economic crisis: America didn’t save for these rainy, stormy days of crisis—and didn’t repair our fiscal roof while the sun was shining.
As of this writing, Washington has readied a staggering $2 trillion in emergency spending in response to the COVID19 pandemic. That promises to be just the beginning of an avalanche of federal spending, as Washington works to soften the blow caused by the pandemic and the reaction to it.
Going into debt to slow the spread of a killer virus, bolster health facilities, develop vaccines, care for the sick, aid businesses and individuals harmed by mitigation efforts, and preserve our way of life is a wholly understandable and defensible course of action—especially given that federal and state lawmakers view COVID19 as a threat to our nation. President Donald Trump described the virus as an “enemy” and framed the federal-state response as a “war.” He even invoked the Korean War-era Defense Production Act “to ensure that our healthcare system is able to surge capacity and capability to respond to the spread of COVID19.” Whether the threat is a mighty army or a tiny pathogen, great nations will spend and do whatever they need to spend and do in order to survive.
What’s less defensible and less understandable—and more costly, as we will learn after the pandemic passes—is piling up debt in times of relative peace and stability.
The national debt is more than $21 trillion, with hundreds of billions added annually in the form of deficit spending—and that was before the coronavirus crisis. Washington in recent decades has resorted to deficit spending, not in response to world wars or depressions or pandemics, but rather because it was easier than making hard choices about the size of America’s safety net.
The result: In FY2020, Social Security outlays will reach $1.092 trillion; Medicare outlays $694 billion; Medicaid outlays $447 billion. Medicare spending is growing at 7.4 percent annually, Medicaid spending by 5.5 percent annually. Social Security outlays are 108 percent higher today than they were in 2005. Defense outlays, by comparison, are 49 percent higher than in 2005.
Those percentages tell us a lot. First, the growth in Medicare, Medicaid, and Social Security is far above the rate of inflation. Second, this sort of growth is unsustainable. Third, Defense has barely kept up with inflation over the past 15 years. In fact, that 49-percent increase in Defense is largely a function of investments in the past three years. Defense spending, unlike those domestic programs, has gyrated through short-term spikes and deep cuts, as triggered by sequestration.
In the wake of the Great Recession and Washington’s efforts to contain it, federal spending jumped from $2.98 trillion in 2008 to $3.72 trillion by 2010—a 25-percent increase in just two years. In response, a Republican Congress and a Democratic president passed the 2011 Budget Control Act (BCA), which included a sequestration provision that ordered across-the-board cuts of $1 trillion—divided evenly between Defense and certain domestic programs. Importantly, even though the Pentagon accounted for just 17 percent of federal spending at the time sequestration came into force, it was ordered to cough up half the savings mandated by sequestration. Equally important, even before the sequestration guillotine fell, the Pentagon was ordered to cut $487 billion from projected spending, largely due to the post-Great Recession spasm of domestic spending.
Put another way, by the time sequestration, had run its course, the Pentagon would lose nearly $1 trillion in expected resources. Readiness, training, modernization, maintenance, weapons development and acquisition, and overall deterrent strength all suffered as a consequence. As Gen. James Mattis concluded, “No enemy in the field has done more to harm the readiness of our military than sequestration.”
One suspects we will see a similar phenomenon on the other side of the coronavirus crisis, as Washington again tries to rein in deficit spending.
Left untouched by sequestration (except for a tiny 2-percent sliver of the Medicare program) were the main drivers of the national debt and annual deficits. As Sen. Angus King points out, “The growth in the budget right now is in mandatory programs, and particularly in healthcare costs: Medicare, Medicaid, Children’s Health Program. That’s what’s driving the federal deficit…not Defense.”
Indeed, recent years have seen a dramatic shift in federal spending. Medicare, Medicaid and Social Security accounted for 26 percent of federal spending in 1974, 40 percent in 2009 and about half of federal spending by 2015, while Defense accounted 30 percent in 1974, 21 percent in 2009 and 17 percent by 2015.
The deficit—the amount of money Washington spends above what it takes in—was $458.5 billion in 2008. After the Great Recession, that number rocketed to $1.4 trillion. Deficit spending stayed above the trillion-dollar mark through 2012, before being pushed down by the BCA. (Even before the coronavirus crisis, the deficit had returned to that stratospheric level.) The national debt averaged around 35 percent of GDP from the 1950s until the Great Recession of 2008. Today, the national debt represents 81 percent of GDP. As the nation copes with the consequences of COVID19, that number will rapidly rise.
Defense, as sequestration illustrated, is an easy target. But consider this: We could eliminate the entire Defense budget and turn the Pentagon into a mega-mall. Yet we still would face a budget deficit—and wouldn’t put a dent into the national debt.
Higher taxes on “the rich” are also a go-to solution, especially for the growing chorus of voices that want to experiment with socialism here in America. While changes in the tax code may be necessary after the coronavirus crisis, consider this: Washington could confiscate all the wealth of America’s 10 richest families—about $695 billion—and pay for just one year of Medicare. The entire accumulated wealth of the much-maligned “one percent”—around $25 trillion—would pay for just seven years’ worth of “Medicare for All.”
In other words, taxes alone won’t solve this problem. The federal government collected $3.46 trillion in taxes in 2019—65 percent more than in 2009. Nor will gutting Defense fix this problem. That’s been tried before, and it will create far more serious problems down the road. It’s no coincidence that China’s piecemeal annexation of the South China Sea, Russia’s invasion of Ukraine, and Iran’s surge across the Middle East coincided with sequestration and America’s military retrenchment (more on that below).
This is a spending problem. The solution, as King points out, is to address the main drivers of spending and debt.
Our starting point must be this: A wealthy and decent nation like ours should provide a safety net when and where it’s most needed.
Thanks to Social Security, some 15 million senior citizens who otherwise would be destitute are not living in poverty today. Before Medicare, 35 percent of senior citizens lived in poverty; today, just 9 percent live in poverty. The federal-state Medicaid program provides healthcare for the poorest Americans. During the worst of the Great Recession, about one in five Americans accessed Medicaid. However, these programs have grown beyond what was originally intended. Without reform, they will consume the entire federal budget—leaving nothing for defending the nation or responding to unexpected shocks such as pandemics and mortgage meltdowns.
Along with a pension and personal savings, Social Security was supposed to be one leg of a three-legged stool to support Americans during retirement. But fewer employers offer pensions (less than 20 percent of salaried workers have pensions today). Americans don’t take full advantage of what replaced pensions (only five percent of 401(k) participants save the maximum allowed). And Americans don’t save like they used to (Americans saved more than 10 percent of after-tax income in 1975, but far below that today).
Moreover, Social Security and Medicare were never intended to deliver decades of retirement and healthcare benefits to each retiree. In 1935, when the government set the retirement age at 65, life expectancy was 63. When Medicare was created in 1965, life expectancy was under 70. Nowadays, Americans can expect to live deep into their 80s. In other words, systems envisioned as helping people at the end of their working years—and relatively close to the end of life—are being asked to supply nearly a quarter-century of benefits.
Exacerbating the problems facing Medicare and Social Security are a) massive demographic shifts and b) increased benefits. In 1950, there were 16 workers per Social Security beneficiary; in 1965, the ratio was 4 to 1; today it is 3 to 1; by 2025, it will be just 2.3 to 1. As to increased benefits, consider the Medicare Part D prescription benefit (added in 2006), which collected $9.9 billion in premiums in 2013 but paid out $69.3 billion in benefits.
Finally, the Medicaid program was intended to provide basic healthcare for the very poorest Americans. Congress expressly limited eligibility to the “medically needy” whose income was 133 percent of the poverty level. Today, individuals earning up to 138 percent of the poverty level are eligible. Medicaid participation jumped from 21.6 million in 2000 to 58 million in 2012, after the passage of the Affordable Care Act. (It may jump again, as the federal government considers opening a special COVID19 enrollment period.)
In 2010, the Simpson-Bowles Commission proposed a range of reforms to address America’s deficit-spending crisis: creating a Cut and Invest Committee to trim 2 percent from discretionary spending annually; reforming the tax code, eliminating tax loopholes and broadening the tax base; cutting congressional and White House budgets by 15 percent; reducing the federal workforce through attrition; ending Medicare-Medicaid dual eligibility; reforming the medical-malpractice tort system; changing the way civil-service pensions are calculated; right-sizing Social Security benefits for high earners; gradually increasing the Social Security retirement age by indexing it to life expectancy.
Yet President Barack Obama and Congress never acted on the commission’s recommendations.
That impasse led to the BCA. The commission’s roadmap still offers a way forward. It’s worth noting that bipartisan reforms in 1983 raised the Social Security retirement age—incrementally, over several decades—from 65 to 67. As life expectancy continues to outpace what the founders of Social Security and Medicare envisioned for retirement, it’s time for another round of incremental increases to Social Security and Medicare benefit-eligibility.
Beneath this blizzard of billions and trillions is a simple truth that too many Americans fail to grasp: There can be no Social Security—which is to say, no social safety net—without national security.
The Founding Fathers understood this. Just consider the words of the thinkers who most influenced them: John Locke argued that the government exists to “preserve…life, liberty and estate”—a phrase echoed in the Declaration of Independence. Adam Smith described “protecting the society” from “violence and invasion” as “the first duty of the sovereign.” In the Federalist Papers, James Madison listed “security against foreign danger” as the primary purpose of government and an “essential object of the American Union.”
Hence, the Constitution calls on the federal government to “provide for the common defense” in the very first sentence; grants Congress the power to “raise and support armies…provide and maintain a navy” and “provide for organizing, arming and disciplining the militia”; and authorizes the president to serve as “commander-in-chief of the Army and Navy…and of the militia of the several states.”
Yes, the Constitution mentions the “general welfare,” but it says nothing about social safety nets. Perhaps that’s because the Founders recognized that if America’s government didn’t provide for the common defense, it ultimately wouldn’t be able to provide much else.
“The national debt,” Trump declared in his National Security Strategy, “presents a grave threat to America’s long-term prosperity and, by extension, our national security.” Then-DNI Dan Coats and his fellow intelligence chiefs added in 2018, “federal spending…is threatening our ability to properly defend our nation both in the short term and especially in the long term.” Leon Panetta, Ashton Carter and Chuck Hagel, who led the Pentagon under Obama, warn that the consequence of “a broken budget process” is “a mounting national debt that threatens the resources needed for our national security.” Mattis echoed their views, noting that “No nation in history has maintained its military power if it failed to keep its fiscal house in order.”
The Pentagon’s $712-billion piece of the federal pie is an enormous amount of money. But consider all the Pentagon is being asked to do: wage an open-ended war on terror; engage in counterinsurgency operations around the world; contain Iran and North Korea; defend more allies in Europe and Asia than ever before; police the old domains of land, sea, air and space as well as the new domain of cyberspace; and deter two great-power competitors in what increasingly feels like Cold War 2.0. Yet today’s defense outlays (as a percentage of GDP and federal spending) are nowhere close to what they were during the Cold War. For most of the Cold War, Americans spent between 5 and 9 percent of GDP on defense (see pages 149-152). Today, we invest just 15 percent of federal outlays—and 3.1 percent of GDP—in defense.
Social Security and Medicare are entitlements in the truest, purest, best sense of the word: Those of us who have paid taxes to support these programs are entitled to benefits based on our contributions. As Webster’s says of the word “entitlement,” by paying into these programs, we have “a right to have, do or get something” in return. The question is: What happens when there’s nothing left to pay for other functions of government, especially the essential function of defense?
That’s a difficult question to ponder as America’s government expands its reach and role in response to COVID19. But once the coronavirus storm passes—and it will—Americans must come together to address that question and repair the roof.
Alan W. Dowd is a senior fellow with the Sagamore Institute, where he heads the Center for America’s Purpose and authors the Project Fortress blog. Follow him on Twitter @alanwdowd