In October, the U.S. national debt reached $31 trillion, and the government is projected to wade another trillion dollars into the red in the 2023 fiscal year. The longer-term picture is even gloomier, with the deficit expected to double to $2 trillion by 2030.
Indeed, the longer the horizon, the worse things get. At 98% of Gross Domestic Product, the current national debt is the highest it’s been since just after World War II. On its current course, the debt will soar to 185% of the country’s entire economic output by 2052.
What’s particularly troubling is that the government’s 2022 $1.3 trillion-dollar deficit came at a time of near-record tax intake. At 19.8% of GDP, Uncle Sam’s 2022 tax haul was close to the all-time high of 20.5% set in 1944.
Washington doesn’t have a revenue problem — it has a spending problem.
What few people realize, however, is the extent to which the U.S. government’s disastrous trajectory is on autopilot, thanks to the fact that an ever-larger proportion of federal spending happens without Congressional action.
To understand why, it’s important to first understand that there are two main categories of government spending:
- Discretionary spending, which requires a vote by Congress as part of the annual appropriations process.
- Mandatory spending, which is dictated by previously-enacted laws and thus happens without an annual vote in Congress. Social Security, Medicare and Medicaid comprise a big majority of mandatory spending.
Here’s where things have taken an ominous turn. In 1965, mandatory spending accounted for 34% of all federal spending. Today, that share has more than doubled, with mandatory spending representing 71% of federal outlays. With overall spending higher too, mandatory spending is much larger slice of a larger pie.
As much as it’s right to spotlight wasteful discretionary spending — like a $2.4 million National Science Foundation grant to promote dinosaur enthusiasm or $11.3 million to tell Vietnamese people to stop burning trash — the truth is that the annual budgeting process offers federal legislators a shrinking opportunity to make meaningful fiscal course corrections.
While mandatory spending can be adjusted by passing new laws, there’s a big problem with that: Meaningfully changing the trajectory of mandatory spending requires meaningful adjustments to Social Security and Medicare.
The mere idea arouses indignation among those who’ve been paying taxes into those programs for all their working lives. That’s understandable, since the government fosters the myth that Americans have Social Security and Medicare “accounts.”
However, the truth is that these programs increasingly operate not as savings accounts or insurance plans, but rather as schemes that redistribute money from current workers to retirees. Social Security already dishes out far more in benefits than it takes in via payroll taxes, and Medicare crosses into an annual deficit this fiscal year.
While former Democratic Speaker Tip O’Neill rightly called Social Security the “third rail” of American politics, some Republicans have recently dared to propose touching both it and Medicare.
The Republican Study Committee — a group of House reps — in June of this year floated a budget that suggested:
- Gradually raising Medicare’s eligibility age to 67 and Social Security’s to 70, and then indexing both to life expectancy
- Withholding payments from those who retire early and earn more than a certain amount
- Reducing Social Security payroll taxes and redirecting them to private alternatives
- Phasing in means-testing for Medicare
Sen. Ron Johnson (R-WI) has proposed moving Social Security and Medicare from the mandatory spending category to the discretionary one, so that Congress is compelled to actively monitor and manage the programs — rather than contentedly looking the other way as their mandatory nature digs them deeper into a hole.
