Entitlement Programs are a Real Crisis


By: James D. Kellogg

The United States of America is out of money. Our national debt exceeds $14 trillion. Yet President Obama’s federal budget proposal for fiscal year 2012 calls for spending an additional $3.73 trillion with a predicted deficit of at least $1.1 trillion. This would add at least $9.4 trillion to the national debt over the next 10 years. Annual interest payments would approach $700 billion per year!

If that sounds bad, brace yourself. The real debt bomb is the combined entitlements of Social Security, Medicare, and Medicaid. An estimated 77 million baby boomers, born between 1946 and 1964, have begun to flood into these programs.

According to the most recent Social Security and Medicare trustees’ report, the unfunded liabilities of these programs exceed $100 trillion. Factor in unfunded Medicaid mandates imposed on the states and the number becomes mind-boggling. The entire gross domestic product of the United States for 10 years would not cover the shortfall.

If taxes remain at historical averages, entitlements will consume 100 percent of all tax revenues by 2049. But higher taxes won’t solve the problem. Federal income tax rates would have to be more than doubled to keep up with rising entitlement costs. Only an economic illiterate would consider that feasible.

Here’s a reality check. It is impossible to balance the federal budget without cutting entitlements. That’s the ugly truth.

So how do you reform and curtail the great achievements of the New Deal and Great Society?

Taxpayers should be allowed to invest some Social Security contributions in options such as IRAs. This would improve individual return on investment, reduce government cost, and keep the money out of politicians’ reach.

A phased increase in the normal retirement age (NRA) is unavoidable for those currently under 55 years of age. It’s not possible to pay benefits to the exploding number of retirees as life expectancy increases.

Medicare, which provides health care coverage for most citizens over 65 as well as others with disabilities, must be changed to a “defined contribution” system. This means the government would make direct contributions to competing free-market health care plans chosen by enrollees. Subsidizing premiums rather than “covering” payments for services rendered would reduce complexity for health care providers and promote fiscal restraint amongst enrollees.

Medicaid covers medical expenses for about 16 percent of the nation’s population, including children, elderly, and disabled. Under the current system, states that spend the most on Medicare gain at the expense of federal taxpayers in other states. Medicaid should be changed to a block grant program in which states receive a fixed amount of money each year. It is also critical to stop fraud and overutilization of medical services. For instance, it is common for illegal aliens to utilize Medicaid to obtain medical care through hospital emergency rooms. The care is rendered at the expense of the American taxpayer.

The role of massive entitlements in our compounding debt crisis is inarguable. The debt bomb will detonate when US Treasury securities are no longer the most trusted asset around the world. When foreign governments balk at buying more American debt, interest rates will soar, spelling doom for the US equity market.

Our window for redemption is closing. Americans must act decisively to reform Social Security, Medicare, and Medicaid. It is immoral to make unsustainable promises to today’s citizens while condemning future generations to bankruptcy and poverty.

United States citizens must ponder a simple question. Are we going to defuse the debt bomb or let it explode in the faces of our children and grandchildren?

James D. Kellogg is a professional engineer in Colorado, the author of the thriller novel E-Force, and the founder of LiberTEAWatch.com. Please visit JamesDKellogg.com or contact him at jameskellogg@comcast.com.

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