The Failure to Establish Effective Rules for Financing U.S. Federal Entitlement Programs

The worsening federal fiscal imbalance is a consequence of an asymmetry in the federal budget process whereby automatic growth in the largest federal entitlement programs of Social Security, Medicare, and Medicaid drives escalating deficits without any intervening votes by lawmakers. Medicare’s financing construct permits lawmakers to shift rising program costs to premium-paying beneficiaries and federal taxpayers without constraining the worsening pressure Medicare places on federal finances. Social Security’s finances have not been corrected since 1983, and federal lawmakers are showing increased willingness to evade historical restraints on shifting costs from Social Security’s payroll tax base to the larger federal budget. Medicaid spending growth is unbound by any meaningful constraints and has been accelerated by repeated program expansions. The historical evidence suggests that the worsening fiscal problem will remain insoluble as long as solutions depend on lawmakers repeatedly cobbling together legislative majorities to enact piecemeal financing corrections. More promising approaches include enacting automatic stabilizers to re-index the growth of entitlement program costs and revenues so that they remain stable as a percentage of GDP. Far less promising are process-based reforms, such as outsourcing the task of developing fiscal reforms to ostensibly independent boards and commissions, which historically has tended to replicate partisan divides in Congress rather than bypassing them