deficit

Earlier this year, a $1.3 trillion dollar omnibus spending bill left many fiscal conservatives wretching over the rise in domestic spending, but Hillsdale College Prof. Gary Wolfram says mandatory spending is real emergency and we’ve got less than a decade to do something before it gobbles up all of our revenue.

Wolfram teaches economics and public policy at Hillsdale.  He also served as chief of staff to former Rep. Nick Smith, R-Mich, in the mid-1990’s and on the Michigan State Board of Education.

The omnibus controversy arose when President Trump and Republican congressional leaders agreed to huge increases in domestic spending in exchange for lifting the spending caps on national defense spending.

In a recent column, Wolfram explains that mandatory spending – Social Security, Medicare, Medicaid – is the much greater threat.  What makes it mandatory is specific congressional acts dictating how much is spent on those programs.

In our interview, he discussed how much federal revenue goes towards mandatory spending now and what it will look like in a few years if the problem is not addressed.

“If you look at mandatory spending plus interest on the debt, in 2019 it’s going to be 70 percent of the budget outlays and 89 percent of the revenue.  So if Congress didn;t enact anything, 89 percent of the revenue’s going out the door already with mandatory spending.

“If you get to 2028, according to the Congressional Budget Office, 98.5 percent of all the revenue that comes into the federal government is going to be spent already, either through Social Security, Medicare, Medicaid, and some other items that are already mandated, plus net interest,” said Wolfram.

“So if you do not do something about Social Security and Medicare, which between them are almost two trillion dollars in 2019 and are going to be $3.3 trillion in 2028, you’re not going to do anything about the deficit,” said Wolfram.

While Wolfram believes each mandatory program must be reformed, his first recommendation is to change the appropriations process.  In Wolfram’s home state of Michigan, the legislature determined how much is spent on each program every year, regardless of what is mandated in statute.  He says the same principle should be applied in Washington.

“Let’s say Social Security is supposed to spend $1.043 trillion in 2019.  If this were the way the Constitution worked in the federal government, Congress appropriates a trillion dollars.  Everybody gets their proportionate share of the trillion dollars.  I think that’s the type of thing we’ve got to be looking at,” said Wolfram.

Wolfram says Congress won’t get serious about reforming programs until members are faced with passing a massive hike on Medicare and Social Security taxes.

He ought to know.  When serving for Rep. Smith, Wolfram pushed legislation that would allow taxpayers to set aside a portion of the their Social Security tax payments into a private account in exchange for receiving smaller checks when they retire.  Only one other members showed up at the press conference announcing the bill.

But he says there are still measures that could do some good.

He says keeping the system in place for Americans 55 years and older is doable if younger people are told they won’t get Social Security benefits until they are 70 or 75.  However, he believes Medicare needs a far more drastic overhaul.

“With Medicare, you’ve got to change the way the system works.  You’ve got to make it like health savings accounts are in the private sector, where it’s a high deductible policy where you get so much and then you ask the question, ‘How much does it cost when you go to get your blood test?'” said Wolfram.

He says there are simple ways to drastically reduce Medicaid costs as well.

“Think of what the incentives are in Medicare or Medicaid.  It’s to produce something that the government will pay for, even if it’s inordinately expensive, because the person buying it  is not the person receiving it,” he said.

Wolfram says the health savings account approach works well on Medicaid as well.

“If you apply that to Medicare and Medicaid, it’ll change the whole incentives of the system.  I’ll be Walmart or Walgreens and I’ll have a nurse practitioner there, charge you ten bucks to tell you your kid’s got pink eye and then provide you with a prescription,” said Wolfram.

Congress refuses to deal with the problem, but Wolfram still holds out hope that lawmakers will do the right thing when they have no other choice.

“I believe at some point things are going to get bad enough that they’re going to have to deal with it,” said Wolfram.