Earlier this month, Anheuser-Busch was bought by the Belgian brewer InBev for $50.3 billion. As symbolic as the purchase was for American beer drinkers, the deal will have an even bigger impact on Belgium’s economy. A gross domestic product (GDP) of $378.9 billion makes Belgium the 28th-largest economy in the world. Now that’s a lot of money.
But it’s only a little more than the $370.8 billion our federal government spends on Medicare alone. The U.S. spends a total $1.2 trillion on the Big Three entitlement programs ($581.4 billion on Social Security, $370.8 billion on Medicare, $291.2 billion on Medicaid). As a new Heritage chart shows, America’s entitlement welfare state costs as much as the purchasing power of Canada’s entire economy. Unfortunately for us, and Canada, our entitlement spending is programmed to grow much faster than Canada’s economy, now the 13th-largest in the world.
The 2008 annual report of the trustees of the Social Security and Medicare trust funds concludes that both programs will require progressively larger transfers from general revenues to maintain projected levels of spending. Starting in 2010, the roughly $80 billion in annual Social Security surpluses that Congress has been borrowing and spending on other programs will begin to shrink. From that point on, Congress either will have to find other sources to replace the borrowed money or reduce spending. The surpluses will end in 2017, the year Social Security begins to spend more than it collects. In 2020, a little more than 12 years from now, today’s $80 billion annual Social Security surplus will turn into a $75 billion annual deficit — a $155 billion turn for the worse.
Medicare is in even worse shape. The first wave of 77 million baby boomers will start to retire under Medicare in 2011, stimulating higher use of new, more expensive medical technologies. The latest Medicare Trustees report notes: “The difference between Medicare’s total outlays and its ‘dedicated financing sources’ is estimated to reach 45 percent of outlays in fiscal year 2014, the seventh year of the projection. Within the next five years, general revenue transfers are expected to constitute the largest single source of income to the Medicare program as a whole — and would add significantly to the federal budget pressures.”
In 2003, Congress created mechanisms designed to force hard decisions on controlling health care costs. At every turn, when the time to make hard choices arived, Congress retreated from the issue. For example, the Department of Health and Human Services issued regulations to change the way Medicare buys medical supplies. Medicare currently uses a fee schedule — created by government and influnced by special interests — to set prices for all medical equipment. After the HHS issued regulations phasing out that artificial fee schedule in favor of a free- market bidding process, suppliers of medical equipment flooded Capitol Hill with lobbyists to stop the change. The lobbyists won. Congress caved. The centrally planned fee schedule lives on.
Also as part of the 2003 effort to control costs, Congress created a “Medicare Trigger” that obligated the White House, the House and the Senate to act whenever two consecutive reports by the Medicare Trustees projected more than 45 percent of total costs would have to come from general revenues within seven years. This year’s Medicare Trustees report pulled that trigger. President Bush, under his legal obligation, submitted a budget proposal that would, if enacted, reduce Medicare spending by $178.2 billion over five years and $556 billion over 10 years.
But now, instead of following the law, liberals in Congress are moving to change the rules and avoid the issue entirely. Rep. Pete Stark (D-Calif.), chairman of the Ways and Means Health Subcommittee, told CongressDaily: “We must turn off the trigger and reject Republican attempts to arbitrarily limit Medicare financing.” Stark’s complaints of “arbitrary limits” would be more convincing if liberals were trying to set any limits on entitlement spending at all. Social Security and Medicare already consume 7.5 percent of our GDP. Unless Congress passes reforms, those entitlements will account for 13 percent of GDP by 2030.
This spring, 16 federal budget experts from seven think tanks (including American Enterprise Institute, Brookings Institution, Concord Coalition, The Heritage Foundation, New America Foundation, Progressive Policy Institute and Urban Institute) issued a paper concluding that automatic, escalating benefits from Social Security, Medicare and Medicaid will cause “unsustainable deficits in the federal budget” that “threaten the health and vigor of the American economy.” Their report concludes: “Our group has come together, from diverse points on the political spectrum, to sound an alarm: if America is to remain strong, such evasions must end.”
- A new Wall Street Journal/NBC News poll finds that energy — including gasoline and utility costs — ranks as the economic issue voters say affects them most personally.
- House Speaker Nancy Pelosi (D-Calif. ) again failed to muster enough votes to pass her no-new-energy plan after she again refused to allow a vote on increased domestic oil production.
- Rising energy prices are squeezing consumers’ utility bills, with the Energy Information Administration (EIA) estimating electricity bills will rise 5.2 percent this year and 9.8 percent next year.
- After speaking to 200,000 adoring Germans yesterday, Barack Obama canceled visits to American troops at bases in Germany.
- For the first time since 2002, beer reclaimed a significant advantage over wine.