Budget issues affect us all and how they are dealt with is important to my work in Congress
Our budget situation can be described in one sentence: we must reform entitlements.
Budget deficits are better than they were a couple of years ago, but they are still bad. Despite the recent improvement, CBO projects budget deficits to start growing again in 2016 and exceed $1 trillion in 2023. Despite claims from the Left, these deficits will not be caused by insufficient revenues. In fact, revenues will average 18.1% of GDP over the next ten years which is about equal to the post-World War II average.
The situation is even worse when we consider that the Federal Reserve has been suppressing interest rates. CBO projects that interest rates will return to normal in the next several years which means interest payments will increase substantially. In 2013, the Treasury paid $221 billion in net interest. CBO projects that this will increase to $876 billion in 2024. In 2024, we will be spending more on interest than on everything else except Social Security and Medicare. We will be spending more on interest than on defense.
Many have argued that defense spending is the main driver of our deficits, but that simply is not true. According to CBO, defense outlays will increase at about 1% per year for the next ten years, way below the rate of inflation and much lower than overall federal spending growth rate of 5%.
The real cause of deficits over the next ten years is entitlements. From 2014 to 2024, growth in entitlement spending – mainly Social Security, Medicare, and Medicaid – will account for nearly 90% of total non-interest spending growth.
In November 2011, I proposed a seven-point Social Security reform that achieves permanent annual balance by 2051, achieves actuarial balance for the next 75 years, and avoids tax increases and trust fund insolvency. Total Social Security benefits would continue to grow but at a slower rate. The vast majority of retirees, particularly those with average or below average lifetime earnings, would receive a larger check than they are getting today. Some retirees with very low income would get an even larger check than they would receive under the status quo. Using current benefits as a baseline and adjusting these benefits for inflation, middle and lower income retirees in future years will get essentially the same or better benefit than current retirees.
My reform proposal contains several provisions that have been discussed for years such as increasing the normal retirement age, implementing progressive price indexing beginning at the 50% percentile, increasing the number of computation years, and using chained-CPI to calculate annual COLAs. My proposal includes three provisions that have are somewhat new. Two of them, indexing the special minimum benefit to wages instead of inflation and increasing benefits by 5% for those reach their 85th birthday, help our most vulnerable retirees. The final provision implements an annual means test that would reduce benefits on those with incomes in excess of $120,000 in the most recent tax year. Means testing is a lot better than raising taxes. You can view my proposal at http://chaffetz.house.gov/issue/social-security
*Source for above data except for Social Security proposal: Tables 1, 2, and 3 of http://www.cbo.gov/sites/default/files/cbofiles/attachments/45229-UpdatedBudgetProjections_2.pdf