Waiting to Make Changes Is Not the Answer
In a New York Times op-ed the other day, Paul Krugman argues that the urgency and significance of the debate over the federal budget deficit are overstated. He contends that the outlook for the deficit in the next 10 years, "doesn’t look at all alarming,” even without the $1.4 trillion in deficit reduction the Center on Budget and Policy Priorities argues to be sufficient to stabilize the debt as a percentage of GDP. On the budget, he says:
The budget deficit isn’t our biggest problem, by a long shot. Furthermore, it’s a problem that is already, to a large degree, solved. The medium-term budget outlook isn’t great, but it’s not terrible either — and the long-term outlook gets much more attention than it should.
But then he continues on to say that we do indeed have some long-term budget challenges, but that (in his view) waiting is okay:
Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here’s a question you almost never see seriously addressed: Why, exactly, should we believe that it’s necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?
The reason we need to act now is that rising debt levels, rising health care costs, and the budgetary challenges of dealing with a largely retired Baby Boom generation a decade or two from now cannot be fixed over night. Addressing health care and retirement costs in a smart way takes time, and delaying changes comes with severe economic risks that have been quantified by many economists, severe societal risks for the people who truly rely on Social Security and other safety net programs, and severe generational risks.
Delaying to put in place reforms to our largest federal health care programs -- reforms that we know can help address the problem of rapid cost growth -- creates even higher costs and debt levels down the road and a reduced ability to make reforms to those programs if millions more beneficiaries are in or near retirement. It is true that lawmakers and experts do not know all the details about how some health care models and payment ideas might pan out in the future, and additional time can shed further light on those questions. But delaying all action, even on reforms that experts know a great deal about, is not responsible. Reducing certain payments to health care providers that MedPAC and other health experts agree are in need of reform, reforming cost-sharing rules to help give beneficiaries more skin in the game and reduce the amount of unnecessary care, and changing other payment rules to improve care coordination are examples of actions policymakers can take now.
But it's not just a health care problem. The aging of the population is actually a larger driver of deficits than health care costs for the next few decades, though not over the long-term. Addressing the challenges posed by population aging requires gradual changes. That way, future and current beneficiaries are given plenty of time to prepare for any changes. It wouldn't make sense to attempt to reform retirement programs overnight once we hit the 2030s when we have the benefit of time right now to phase in smart and gradual changes. But even if it were possible or even desired to significantly reform health care and retirement programs overnight for all future and current beneficiaries alike, that still wouldn't address the accumulating interest payments and higher interest rates that the United States would be paying on a higher debt load. Interest payments and debt levels cannot be changed overnight.
Making reforms to both the tax code and entitlement reforms to control future deficits is not about enacting cuts today to stave off equal sized cuts in the future, as Krugman's argument hints at. Reforming the budget is about slowing the growth of spending and reforming the tax code in order to stave off abrupt and likely far more aggressive spending cuts and tax increases down the road. This principle applies to whether or not you're talking about Social Security benefits in the 2030s, when the trust funds are projected to be exhausted, or a possible loss of confidence in the United States' finances before or after that which could affect all taxpayers and the people who truly rely on the social safety net alike. Again, that's not responsible.
Policymakers should seek to make future budget projections as sustainable as possible, and then make further adjustments if needed. Not making changes now when we know we will have to do so in the future, and with the luxury of time and an abundance of gradual options right how, is a very risky proposition. So yes, it is necessary to act now to start gradually addressing the budget issues of the 2030s.