The two top Senate Budget Committee members painted a grim picture May 12 of the financial outlook for Social Security and Medicare as the "Baby Boom" generation begins to retire this year and future unfunded liabilities for the entitlements begin to explode.
Using a series of colored graphs and charts showing projected demographic and fiscal trends, Senate Budget Committee Chairman Kent Conrad (D-N.D.) noted that while 26 percent of the Boomers will reach retirement age by 2013, by 2018, 51% of their cohorts will be retirees. The "Demographic Tidal Wave of Baby Boomers," observed Conrad, will more than double the number of retirees in the U.S. by mid-century, from roughly 40 million to 82 million, putting tremendous new strains on federal entitlement programs. Whereas Medicare, Medicaid, and Social Security spending consume approximately 8 percent of our Gross Domestic Product (GDP) today, by 2050 those programs will comprise 18 percent of GDP. Medicare is expected to become insolvent by 2019 and Social Security by 2041 if no changes are made in the system.
Senator Judd Gregg (R-N.H.), the top Republican on the Budget Committee, showed how marginal income tax rates would have to be raised to absurd levels if projected entitlement deficits are not addressed: the current marginal rates of 10, 25, and 35 percent would need to be raised to 17, 43 and 60 percent if entitlement spending increases by one percent of GDP; and to 26, 66, and 92 percent if it increases by 2.5 percent of GDP. Gregg added, though, "If we [senators] went out as individuals to propose cuts in social security benefits or increases in taxes, the special interests would descend on us like locusts" and attack our positions by sending out fear-mongering letters to their constituent groups. The so-called "third rail" would be activated.
Consequently, Gregg said, he and Senator Conrad concluded that the only way to attack this problem in a timely manner is on a bipartisan basis. The agreed on several principles to devise such an approach: (1) that procedure be used to drive policy; (2) that the process should be fair and bipartisan, with nothing off the table; and (3) that the bipartisan group should be comprised solely of persons who are already players. "We've had some excellent commissions in the past, but their recommendations have gone nowhere," said Gregg.
Conrad and Gregg subsequently introduced legislation calling for a special task force of 16 members, eight Republicans, eight Democrats, two of whom would be administration officials, the rest from Congress. The special task force recommendations for entitlement and tax reforms would need to be approved by three fourths of the task force members, and then put on a fast–track schedule through the House and Senate, without change. A three-fifths vote in both houses would be required for passage. Gregg said he and Conrad received encouraging early support from leaders in both houses, but that the presidential campaign has probably overtaken chances for the proposal to be enacted this year.
Kimberly Morgan, Assistant Professor of Political Science at George Washington University, said there is a mistaken impression that the 2003 Medicare prescription drug law was a policy initiative driven by President George W. Bush when in fact it was the Congress, under Speaker Dennis Hastert and Sen. Bill Frist, that took the lead on the legislation. Another piece of conventional wisdom is that it is almost impossible for Congress to pass anything of major importance given the number of veto points in the system at the subcommittee, committee, floor and conference levels, and the extreme permeability of the system to special interests seeking to block new initiatives. However, much of that has changed in the last quarter century, Morgan wrote in an original paper prepared for the Wilson Center seminar. Congress has become more centralized as an institution with its own budgetary process, budget committees, Congressional Budget Office, and reconciliation to expedite major tax and entitlement matters. The other significant development in the last two decades has been the growing powers of party leaders to set the legislative agenda and help to shape and advance legislation important to the party.
President Reagan and Congress established the bipartisan Greenspan Commission in 1981 to deal with a Social Security financing crisis, and Congress provided bipartisan support for its enactment in 1983 behind the strong support of Speaker Tip O'Neill and President Ronald Reagan, noted Morgan. But such a bipartisan approach may not be as workable today given the changing nature of Congress with more ideologically homogeneous parties, more partisan polarization between the parties, and strong party leaders setting the agenda and election strategies for retaining or gaining partisan majorities in Congress. Morgan doubted a new Democratic president, for instance, with a larger Democratic majority in Congress, would adopt a bipartisan strategy to enact entitlement or healthcare reforms.
NPR health correspondent Julie Rovner noted that the next President will be saddled with so many fiscal and international problems that entitlement changes will not have high priority except as part of an overall program of expanding healthcare coverage for uninsured Americans. Healthcare reform will suck most of the oxygen out of the system, said Rovner. She was dubious about the advisability of a bipartisan entitlement commission given their lack of success in the past. Congress is too inclined to become a micro-managers over Medicare procedures and prices to address the larger, long-term financial needs of the system, said Rovner. It has contented itself with incremental changes, or reversing previous drastic cuts.