Reforming the federal government’s largest entitlement programs is an imposing political project that will require those with shared concerns to work together on a common plan of action. The essays published in response to my original submission in this symposium, “The Path to Entitlement Reform,” are fine examples of constructive perspectives that should inform the development of a broader consensus on how to proceed.
The three essays, from Sita Slavov, Joel Griffith, and Thomas Savidge, differed in terms of emphases and focus, but each of the authors expressed, in their own ways, that entitlement reform needs to be tethered to values and principles if it is to be successful. It is not enough to enact any changes whatsoever so long as the fiscal math improves. What is done matters immensely too, especially from the perspective of ensuring the federal government plays an appropriate, and not a disproportionate, role in American life.
First Principles
As Slavov noted, entitlement reform can be based on either explicit or implicit values. For some, the purpose might be to pay for an even more generous social welfare system with higher levels of taxation. The goal would be less income inequality, even if that might lead to slower overall income growth for future generations. For others, the aim might be to shrink the state so as to maximize the space for individuals to plan their own lives and take responsibility for their welfare.
Then there is the critical question of intergenerational equity. Slavov stresses that continued borrowing to finance consumption beyond what today’s voters are willing to pay for with taxes should be seen for what it is: a failing that violates the core value of justice. What is borrowed today lessens economic opportunities for future generations. Trust funds and other budget rules can help institutionalize the principle that today’s voters should not be free to impose excessive and avoidable costs on future taxpayers.
Griffith took up the cause of the young from a different perspective. His focus is on giving today’s workers more agency when planning their financial lives by personalizing Social Security through investment accounts. Such a reform would create a direct link between earnings and wealth accumulation for retirement, and would give millions of workers with modest incomes access for the first time to the higher returns available from equity investments and corporate bonds.
The unstated but important values underlying the recommendations in my essay are close to what Savidge urges as a benchmark for measuring progress. For a century, defenders of a properly conceived liberalism have struggled to hold back the powerful political impulse to hand ever more power to the state in the name of economic security. It is the reason Social Security and Medicare are much larger today than when they were first conceived. The starting point for entitlement reform should be a reassertion of a sound perspective on the proper role of the state in public life, which can then inform whether gradual reforms would move in the right direction, or not. Simply raising taxes to whatever level is necessary to pay for untargeted and inefficient programs is not the answer. The recommendations in my essay were aimed at reducing the cost burden of entitlements to a level that would be tolerable, in part by prioritizing assistance for the lowest-income households.
Savidge hints at another important factor, which is prudence when weighing options. Some half-measures are better than others. For instance, it might be acceptable to agree to a payroll tax increase as part of a larger Social Security reform plan if the other provisions create the needed stability and financial space for individuals to better plan for their retirements using their own savings and resources. On the other hand, it should never be acceptable to entirely foreclose certain pathways that facilitate individual agency, even if doing so might improve the fiscal outlook.
Trust Funds
Savidge also raises a question about the value of referencing trust funds when pursuing entitlement reforms. As he notes, federal trust funds for Social Security and Medicare do not hold invested financial assets in the same way private trusts do. Rather, these trust funds are accounting devices created to provide information to elected leaders. Their purpose is to track income and outgo across multiple decades with the intention of ensuring that dedicated tax receipts roughly match spending over time. When the trust funds are projected to become depleted, as is now the expectation for both Social Security and Medicare Hospital Insurance (HI) in the 2030s, the issuance of the annual trustees reports puts Congress on official notice that corrective reforms are needed to restore balance.
Reforms which restrain future spending and provide additional space for individual responsibility and initiative should be seen as progress, even if these reforms seem to fall short of a full transformation of what now exists.
In my original essay, I argued that the trust fund construct could be used to advance needed reforms because they are familiar and accepted by both Congress and the electorate as appropriate devices for disciplining program spending. While it would be better if elected leaders acted more promptly on the warnings from the Social Security and Medicare trustees, history shows that it is not easy to ignore warnings of trust fund insolvency indefinitely. In 1983 for Social Security, and in 1997 for Medicare, Congress approved significant program changes with the express intention of preventing the relevant trust funds from becoming fully depleted of reserves.
Trust funds are admittedly imperfect tools for restraining entitlement spending, but they are the tools now available, enjoy a degree of public support, and are far better than no tools at all.
Avoiding a Crisis, or Planning for It
Savidge’s perspective is informed by an expectation that nothing of consequence will change absent a crisis, and that when the inevitable crisis arrives, new possibilities for reform will emerge that otherwise would not be available while voters are protective of the status quo. He recommends working on principled but practical plans that can be picked up when the time is right.
It is an important perspective, but it implies that those who share his dedication to free markets and limited government will have leverage when the fateful day arrives. It is not obvious that this will be the case. It would seem at least possible that the political storm that a debt-induced economic calamity might unleash could precipitate a renewed push for even more forceful state intervention in the economy, with deficits and debt addressed via inflation and high taxes rather than reforms. There are certainly examples of such turns from history (see Argentina, pre-2023).
Moreover, a crisis does not yet seem entirely unavoidable. There are, of course, many indications that the nation’s political processes have been struggling in recent years, but that does not mean nothing will ever happen without a clear rupture forcing elected leaders to take action. For instance, it is still possible that the expected depletion of trust fund reserves in Social Security will induce Congress to take up legislation bringing expected spending in line with revenue in the coming decades. Such a measure need not be disruptive to current beneficiaries or involve precipitous tax hikes, which means it might be possible for it to pass even during a period of relative economic stability. The recommendations offered in my essay were based on the assumption that proceeding with such reforms as soon as possible would be preferable to waiting for an unpredictable crisis to upend the status quo.
Other Perspectives
The US has an ideologically diverse population, but it is important to recognize that the main entitlement programs were put into federal law during periods when the Democratic Party was ascendant. In 1935 and again in 1965, Congress was run by large Democratic majorities, which created the conditions conducive for ambitious program expansions.
Moreover, every high-income democracy has put in place similarly expansive social welfare programs. The US is in some ways an outlier in that it is the only major advanced economy that has not adopted a fully nationalized version of health insurance enrollment. Some countries, such as Germany, allow private entities to operate in the health sector, but they do so with more restrictions than is the case in the US.
When considering this history, it is reasonable to assume that it will be very challenging for a political movement to aggressively alter the direction of federal entitlements if the party that largely created what now exists opposes the reforms. It is not that such a turn is inconceivable, but it would certainly represent one of the more consequential political developments in US history if indeed it did occur.
Some recent history confirms the uphill battle that proactive politicians face when advancing reforms that break with the traditional designs of the existing programs. In 2005, President George W. Bush proposed to offer workers a voluntary personal account which would partially displace the existing Social Security benefit formula. If it had been adopted, millions of modest wage workers would be enjoying a higher level of income in retirement than they currently do under the current program. Despite the plan’s many advantages, the administration found it impossible to get traction to advance it in a GOP-controlled Congress, or even get it a fair hearing.
If the assumption that major reform is likely to require some level of bipartisan cooperation is correct, the implication is that those pushing for reforms will find themselves negotiating changes with counterparts who have entirely different objectives in mind. It was in this context that the recommendations offered in my original essay were made.
That does not mean capitulation to the status quo (with higher taxes) is inevitable. Rather, it means that reforms which restrain future spending and provide additional space for individual responsibility and initiative should be seen as progress, even if these reforms seem to fall short of a full transformation of what now exists. Today’s programs are not so big as to suffocate what is still a largely dynamic US economy. Further restraint on the government’s largest programs will help ensure that remains the case.