Senator Pat Toomey, Republican of Pennsylvania, spoke yesterday at the Brookings Institution about entitlements, taxes, and what happened in the Super Committee budget negotiation. Highlights:
So the first point I want to talk about is the truth. The truth is that our big entitlement programs, Social Security included, but especially the mandatory health care programs, are unsustainable. I think we all know that. They're driving the medium- and long-term fiscal disaster that's accelerating toward us.And it's not just me who says this; President Obama himself has acknowledged this. In a press conference last year, President Obama said, and I quote, 'If you look at the numbers, Medicare in particular will run out of money, and we will not be able to sustain that program, no matter how much taxes go up.'
He went on to say, 'I mean, it's not an option for us to just sit by and do nothing. And if you're a progressive who cares about the integrity of Social Security and Medicare and Medicaid, and believes that it is part of what makes our country great and that we look after our seniors, and we look after our most vulnerable, then we have an obligation to make sure that we make those changes that are required to make it sustainable over the long term.'
President Obama said that just a year ago. President Obama was right. He identified the real problem.
In fact, if you think about it, no significant government program can grow faster than our economy indefinitely. It'll consume everything. That's just arithmetic. That's inevitable. Fact is, however, all three of our big entitlement programs are growing faster than the economy, some much faster.
Take a look at CBO's March baseline. In nominal terms, they're projecting an average 10-year growth rate of 5 percent. In the short run, that's probably pretty optimistic, but that's what they're projecting. Social Security they're projecting to grow at 5.7 percent, Medicare at 6.4 percent, and Medicaid and other mandatory programs, 11.1 percent.
Think about that. Medicaid and the other mandatory health programs are growing at more than twice the rate that we can reasonably hope our economy is going to grow at. This, ladies and gentlemen, I would suggest is pretty close to the definition of unsustainable.
And these programs are not trivial programs, as we know. These are already huge. This year, 2012, Social Security, Medicare and Medicaid, and other mandatory health programs already constitute 42 percent of federal spending. By 2022, these programs alone, together with interest on our debt, are projected to consume about 90 percent of the portion of GDP that we have historically collected in taxes.
I think what we ought to do is extend all the current tax rates for at least one more year. These rates have been in place for 12 years now. There was a two-year extension, as we all know, that was supported with bipartisan majorities and signed into law by President Obama a year and a half ago. I think actually this is the approach that might have the best chance of succeeding.
And then we use that time this next year to do what we really need to do on the tax side, which is fundamental pro-growth tax reform so that we have the growth that we badly need. I think there's really very little dispute that if we do that tax reform right, it generates very strong economic growth and the job creation that goes with it. But we also - it's at least equally important - that we do the entitlement reform that is driving this whole fiscal problem in the first place....
And just think of the upside if we get this right: if we put our biggest entitlement programs on a sustainable path, not only do we ensure their survival, but that's by far the most important thing to avoid this fiscal crisis that we are courting so irresponsibly in my view.
If we also enacted pro-growth tax reform - that everybody knows we need - I think we would kick off a surge of investment and economic growth and job creation and corresponding consumption. I think we would see the recovery that we've been waiting for if we did those two things.So I think a strong recovery is well within reach. But it's up to us.
If we can finally get it right here in Washington with the right kinds of policies that demonstrate we have the political will to put our country on a sustainable fiscal path and we've got the ability to create a pro-growth tax and investment environment, I am convinced the 21st century can be another great American century.
The full text of the speech is here.