In December, the Congressional Budget Office released a study on “Economic Impacts of Waiting to Resolve the Long-Term Budget Imbalance.” Considering that entitlement spending is the driving force behind our debt problems, this title really should be “The Economic Consequences of not Reforming Entitlement Programs Today.” Regardless, the CBO’s ultimate conclusion is:
Waiting to put fiscal policy on a sustainable course would lead to higher levels of government debt, which would be costly in several ways:
Higher debt would reduce the amount of saving devoted to productive capital and thus would result in lower incomes than would otherwise occur.
Higher debt would lead to higher interest payments, meaning that larger tax increases or cuts to spending programs would be needed to make fiscal policy sustainable.
Higher debt would make it harder for policymakers to respond to unexpected problems, such as financial crises, recessions, and wars.
Higher debt would increase the likelihood of a fiscal crisis.
The simple translation of that is that if we wait, the future will be very painful, and we will be poorer.
The CBO continues:
At the same time, waiting to put fiscal policy on a sustainable course could make some generations better off than they would be otherwise. In particular, a delay would tend help older generations by deferring the tax increases or cuts in benefit payments and government services that they would face.
That’s doesn’t seem right, however.
First, when talking about the need to reform entitlement programs today, no one advocates cutting benefits for people who are currently retired or nearing retirement. In fact, most proposals would keep Social Security and Medicare benefits untouched for Americans who are 55 or older. (Take for instance, Rep. Paul Ryan’s Roadmap or the Ryan and Rivlin plan.)
Second, not reforming entitlement spending today will lead to a reduction in benefits in the future. Take Social Security, for instance. By refusing to reform Social Security, we are guaranteeing automatic benefit cuts of about 22 percent for everyone in the program — retirees who never had to plan for a replacement income – in 2037 (when the trust funds are theoretically projected to run dry).
Third, when all or any of the negative consequences listed above by CBO start to unfold, seniors will be affected as much as, or maybe even more than, anyone else.
It seems that it is really in no one’s interest to wait.