Why We Can’t Cut Spending

A whopping 79% of federal spending consists of transfer payments, mostly Social Security, Medicare, and Medicaid. When taken in aggregate health care spending is by far the largest part of the federal budget. Health care spending can’t be cut without a) cutting the reimbursements paid to providers; b) not paying for the health care that somebody wants or needs; or c) both.

That would evoke howls of anguish from providers, beneficiaries of federal health care spending programs, the well-intentioned, and the politically opportunistic.

And that’s why we can’t cut federal spending. The same argument applies to the second largest chunk, Social Security. The howls would just be coming from a slightly narrower (but overlapping) slice of the population. It is now true that if defense spending were cut to zero, it would not balance the budget. And we’re increasing defense spending.

8 comments… add one
  • Guarneri

    Has anyone seen an (trustworthy) actuarial study calculating what the budget would look like after the baby boom bulge passes through?

  • I know of no projections of the budget with that long a timeline. The best actuarial projections are from the actuaries of the Social Security Trust Fundbut they don’t include whole budget projections. The CBO’s projections don’t go beyond 2047 and they’d need to go to 2070 for that horizon.

    The BLS’s projections appear to use the persistence theory.

  • Andy

    The annual trustee reports project out 75 years. Looking at the charts, I don’t see any projected change due to the Boomers passing. Of course, the usual caveats about modeling that far into the future apply.

    https://www.ssa.gov/oact/TRSUM/index.html

  • Guarneri

    It wouldn’t make sense for the SS funder to consumer ratio to invert and not realize savings, unless increasing life expectancy and/or benefit increases dominate. Those could be managed, not that they will. Plus you have rising GDP/National Income/SS taxes with the passage of time. I would remind people that tax revenues are currently at an all time high.

    We have a spending problem, not a taxing problem.

  • Gray Shambler

    This country never acts decisively unless it’s an emergency, then we’re up to it. Debt hasn’t hit emergency levels yet.

  • Once it’s become an emergency, it’s far too late. Lives are destroyed, futures ruined, things can even get violent.

  • Gray Shambler

    You are right, but it still takes an emergency to act.

  • Guarneri

    It’s already a latent emergency. Public employee pensions are woefully under water. I don’t see Indiana or Utah coming to the rescue of IL or CA. SS and Medicare are on a similar path.

    I’m an LBO guy. When you stare down the barrel of that debt service it focuses the mind. There are no fairy tales. No magic solutions. In crisis, solutions almost always are cost and not revenue driven. This means the ability to provide promised benefits has been impaired. Brace for impact.

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