In making the pitch for Social Security personal accounts in his 2005 State of the Union speech, former President George W. Bush declared that absent action, “Thirteen years from now, in 2018, Social Security will be paying out more than it takes in ... By the year 2042, the entire system would be exhausted and bankrupt.”
In response, Democrats portrayed his warnings as alarmist and successfully deployed the argument that there was no Social Security crisis.
Now that we’re in 2018, we know that the projections cited by Bush were off — but only in the sense that they proved overly optimistic. In reality, the Social Security system has been paying out more than it takes in every year since 2010 and these annual deficits have totaled over $600 billion. This means that benefits are currently being subsidized by taxpayers through the payment of IOUs that the rest of the U.S. government built up by raiding the Social Security trust fund to pay for decades of extravagant federal spending. As to that date Bush referred to way out in the future, when the trust fund becomes completely depleted, leading to automatic benefit cuts. It has since moved up eight years to 2034.
Put another way, in 2018 we are now just 16 years away from the day of reckoning that was going to be 37 years away when Bush warned about it. Yet when it came time for President Trump to deliver the 2018 State of the Union address, he made no mention of Social Security, or Medicare, or Medicaid — three programs that currently cost over $2 trillion, accounting for more than half of the federal budget. Instead, he touted paid family leave and proposed $1.5 trillion in new infrastructure spending.
Absent action, spending on the big three entitlements is only going to explode in the coming decades as the retired population increases and healthcare costs rise. This is expected to drive debt to dangerous and unsustainable levels.
It wasn’t too long ago that Republicans embraced a sweeping program to overhaul Medicare pushed by Rep. Paul Ryan, R-Wis., when he was a rising star committee chair. Back then, Republican lawmakers constantly warned about the looming fiscal crisis. Republicans had just taken over control of the House of Representatives in 2011 in a Tea Party wave that provided momentum for the idea of restraining spending and shrinking government. Former President Barack Obama was in office, and Republicans are traditionally much more eager to fight for less spending when they are in the opposition than when they actually have the power to enact an agenda.
At the time, a combination of lower revenues from a weak economy and increased spending exploded annual deficits to over $1 trillion in four straight years from 2009 to 2012. This created an opening to discuss the longer-term problem with mounting debt. As the economy improved and the deficits narrowed, concern tapered off even though the longer-term debt issue has still remained.
Politically, the Tea Party’s momentum weakened over time, and then in 2016, Trump tore through the Republican primary field on a populist message that rejected limited government orthodoxy. In his campaign, Trump promoted a conservatism more of attitude than ideology, and he spoke openly of keeping federal entitlements largely untouched.
During the Obama era, the Tea Party movement briefly created an environment in which there was more political pressure on Republicans to shrink government than to expand it, but things have now returned to the equilibrium in which Republicans avoid dramatic reforms and instead let spending grow out of control on autopilot. For all Trump has done to disrupt politics, this is one area in which he has helped return the GOP to their more traditional posture.
Unfortunately, the long-term problem remains: the U.S. is carrying a historically high amount of debt, and that burden is only going to grow with time. There is only one time in history in which debt as a percentage of gross domestic product was higher than it is now, and that was World War II. But the war was a relatively short-lived event, and after it ended, the debt fell dramatically to more sustainable levels in the economic boom that followed.
In 2007, just before the financial crisis, federal debt held by the public represented 35 percent of the nation’s annual economic output. Within five years, that number had doubled, to 70 percent. Unlike in World War II, the debt hasn’t come back down, even as the economy recovered. It was at 77 percent this past year, and in the decade starting in 2028, it’s going to average 113 percent per year, according to the Congressional Budget Office — meaning the average is going to be higher than the all-time peak during World War II. And it only gets worse from there.
The tangible result of these numbers is that pretty soon, the national debt held by outside investors will exceed the value of all the goods and services produced in the U.S. in an entire year. According to the CBO, this “would reduce national saving and income in the long term; increase the government’s interest costs, putting more pressure on the rest of the budget; limit lawmakers’ ability to respond to unforeseen events; and increase the likelihood of a fiscal crisis, an occurrence in which investors become unwilling to finance a government’s borrowing unless they are compensated with very high interest rates."
In other words, the crisis that we used hear a lot about has in no way been averted. Instead, it’s merely being ignored.