Entitlement Reform Should Be in the President's Budget

Last Friday, 16 Senate Democrats sent a letter to President Obama, but it wasn't for Valentine's Day. Rather, the letter warned the President against including cuts to Social Security, Medicare, or Medicaid benefits in his FY 2014 budget, due out in two weeks. Although it did not specifically mention any policies, it was clearly addressed at the inclusion of the chained CPI in last year's budget and certain modest Medicare cost-sharing reforms. Today, House Democrats sent a letter more specifically opposed to the chained CPI. There has been much speculation about what this budget will contain, particularly with regards to the chained CPI.

However, given the recent deterioration in budget projections, though, this is the wrong time to turn our back on entitlement reforms. With health care, there are significant savings that can be had from health care providers and drug companies -- and the President has those -- but beneficiaries will ultimately need to contribute as well. There are ways to achieve savings that will actually help beneficiaries and make the health care system more efficient, such as cost-sharing reforms. And on Social Security, the system's finances demand that we find solutions, or else beneficiaries will receive a one-quarter cut to benefits in 2033, according to the program's trustees.

As we have said many times before, the chained CPI is the most accurate measure of inflation and should be used where inflation calculations are relevant, whether that be in Social Security or other programs. Chained CPI achieves significant savings across the budget on both the spending and revenue side by more accurately implementing the policy of adjusting benefits and provisions in the tax code to reflect inflation. Overestimating inflation is not a targeted or wise way to increase benefits; other ways exist to boost benefits, particularly for the most vulnerable.

Switching to chained CPI has been a key element of comprehensive deficit reduction plans such as Simpson-Bowles, Domenici-Rivlin and the President's budget and backing away from chained CPI now will make it harder to reach an agreement in the future which puts the debt on a sustainable path while replacing sequester with smarter savings. But chained CPI could also be part of smaller packages such as the proposal put forward by CRFB President Maya Macguineas to use the non-Social Security savings from chained CPI to offset the costs of temporary spending for unemployment benefits and job creation measures, with savings in Social Security going to improve the program's solvency.

Another issue with taking entitlement reforms off the table is the squeeze unchecked growth of entitlement programs will put on the rest of the budget. Deficit reduction efforts on the spending side in recent years have focused almost entirely on discretionary spending, which contains defense spending and non-defense spending like education, infrastructure, and research. That category has fallen significantly in recent years and will continue to be constrained in future years if policymakers do not act to restrain the growth of mandatory spending. With mandatory programs contributing little to deficit reduction so far, discretionary spending has felt the brunt.

In short, we hope that President Obama not only maintains the reforms he proposed last year and in previous years but builds on them. The recent uptick in debt projections should bring a new focus on the drivers of the long-term debt.