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October 25, 2014

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Are entitlements pushing U.S. toward bankruptcy?:

Yes; Federal leaders in strong denial as they stumble toward fiscal cliff

Any honest assessment of entitlement programs recognizes that they’re headed for insolvency without modernization and reform. But too many of our leaders refuse to believe it or delay action for their own political interests.

If we fail to address the crisis, we threaten our commitment to the poor and elderly, jeopardize our investments in other national priorities, leave future generations vulnerable and ultimately face national bankruptcy.

Unless we’re willing to live with those consequences, we must face up to some facts.

First, the programs are unsustainable. As currently structured, entitlement programs can’t keep up with longer life expectancies and changing demographics.

Before long, one-third of Americans will be retired and will spend one-third of their lives in retirement. Over the next 20 years, the number of Americans 65 and over will jump by 75 percent, while those of working age will nudge up by just 7 percent. Within a decade, the total price for Social Security, Medicare and Medicaid will reach $3 trillion a year, but we’ll have fewer workers paying into the system and supporting those growing costs.

Second, entitlement programs are not self-funding and, for the most part, never have been.

Medicare has had a cash shortfall every year since its creation except two: 1966 and 1974. Its shortfall in 2011 was $288 billion. Social Security had a cash flow deficit of $58 billion in 2012. Money must be borrowed to make up for these shortfalls, making entitlements primary drivers of our deficits.

Third, the major programs will be financially insolvent in 20 years. The trust fund for the Social Security Disability Insurance program will be exhausted in just three years.

The trust fund for Medicare Part A, which pays for hospital services, will go bankrupt in 13 years. That projection is based on a “rosy scenario” where Congress will do something it has refused to do time and time again — cut payments to doctors. Social Security will be unable to pay full benefits beginning in 2033 and will be forced to reduce payments by 23 percent.

Fourth, entitlements are consuming our budget. Mandatory spending already exceeds all federal income tax revenues collected.

Finally, it would cost $40 trillion over the next 75 years to keep these programs as they are. We don’t have the money. Absent reform, the situation will require either painful benefit cuts or economy-crushing new taxes — or both.

But there’s good news amid these grim facts. We can reform entitlements without baseline cuts or harming care for the elderly, disabled and less fortunate.

There are many reform options available for consideration — relatively small adjustments in payments, benefits, eligibility, administration and overhead; coverage options and program efficiencies. We can achieve large savings over time with a minimal impact on those who rely on the programs.

The alternative is to do nothing, which would set into motion the harshest and most burdensome entitlement changes of all — the massive benefit cuts and tax hikes that would be imposed when the programs’ funding runs out.

R. Bruce Josten is executive vice president for government affairs at the U.S. Chamber of Commerce.

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