On May 5th, the United States’ national debt hit a new milestone, reaching an exuberant $25 trillion. This milestone comes less than one month after the debt reached the milestone of $24 trillion in April and six months since it passed $23 trillion. Yes, all of those are trillions—with a T. The debt has been inflated by the “CARES Act,” an emergency relief package to address the economic chaos caused by the novel coronavirus pandemic.
This bill will cost US taxpayers $2 trillion, or almost one-tenth of the nation’s gross domestic product. It is by far the most complex economic stimulus program in history. It makes the 2009 Recovery Act seem laughable in comparison. With the current level of spending, the question of how will we pay off this debt must be addressed.
Currently, mandatory spending makes up over three-fourths of federal outlays in the fiscal year 2020. It will cost approximately $3.098 trillion and increase by 6% per year according to the Congressional Budget Office. However, as proven by former Speaker of the House Paul Ryan, mandatory spending reform is complex and unpopular. Most Americans are increasingly in favor of programs such as Medicare and Social Security. Something has to happen before a catastrophe occurs. The CBO projected a $100 trillion shortfall within Social Security and Medicare by 2048. Over $82 trillion of it coming from a cash deficit. But how did these programs get to this point?
In 1935, Social Security’s first year, the average life expectancy was about sixty-two. With sixty-five being the retirement age, most people did not live long enough to collect Social Security. With advancements in medical understanding and technology, the average life expectancy in the United States is almost eighty. Yet the retirement age has not budged since the creation of Social Security.
In 1940, when the first benefits rolled out, there were almost 160 workers for every retiree. Today that ratio is less than three to one. This dramatic decrease, with the increase in life expectancy, means that three taxpayers will be responsible for propping up a retiree for up to thirty years. The situation is becoming ultimately catastrophic. Massive reform is needed before it sends both the national debt and retiree entitlements into a disastrous fate.
So how should this predicament be handled?
First and foremost, the retirement age must be increased to seventy to reflect the current lifespan. As explained by the Manhattan Institute, if nothing changes in fifteen years “there will be just two workers paying the taxes to support each retiree. Every married couple will be on the hook for their very own senior.” Thus, the age of retirement should be gradually increased to at least seventy to slow down this behemoth. Furthermore, having people work longer also increases the time that people can prepare for their retirement. This increase in their time in the workforce would also save approximately $32 billion over ten years.
Another sweeping proposal that could help save future generations is a market-based solution. This free-market alternative would let people take some of their Social Security payment and put it into a personal retirement account that could allow people to control their future. Ultimately, this market-based solution would have higher yields than social security. It doesn’t matter if it was put into buying equity within a business through the stock market. Or even having a lower, yet safer, return through bonds or diversified investments.
Countries that have tried this free-market alternative have seen a boom in economic growth. For example, Chile has become an economic powerhouse since it transitioned to free-market policies forty years ago. This idea of limited government within retirement savings has led Chile to increased economic growth in comparison to its surrounding countries in Latin America and the Caribbean. These proposals, while taking several years, could reduce the deficit by hundreds of billions every year.
Lastly, reforming Medicare is quite a difficult task. It consists of multiple types of coverage: Part A, B, C, and D. It is possible to simplify the program easily and save money at the same time. One approach would be to unify Part A, which is responsible for hospital bills and surgeries, and Part B, which is responsible for doctor visits. If these were combined, it would save an estimated $138.8 billion over ten years. Another proposal would be gradually increasing premiums from twenty-five percent to thirty-five percent over ten years. This change would save $462.5 billion over ten years.
It is clear that entitlement programs must be readjusted to reflect new advancements in technology. Will Congress attempt to do so or will the United States fall further down this abyss? Only time will tell.
The views expressed in this article are the opinion of the author and do not necessarily reflect those of Lone Conservative staff.