Seeing Red Digits After 2002

The balanced-budget plan struck last week by President Clinton and Republican congressional leaders may solve the nation's short-term deficit problem. But it does little to address long-term fiscal crises that are already gathering on Washington's horizon like the promise of thunderstorms to come.

It's the huge generation of the baby boom that's behind predictions of future deficit pressure. When boomers begin retiring in large numbers early in the next century, first Medicare, and then Social Security, may face an enormous cash drain. The deficit could explode after 2002 as US social entitlements gobble an increasing share of the federal budget, leaving little left over for education, transportation, or national parks.

In fact, an increasing number of critics believe lawmakers have passed up a unique opportunity to lay the foundation for solving some of the nation's fundamental fiscal problems.

They say the new balanced plan may make the long-term problem worse: Two proposed structural solutions - a change in cost-of-living adjustments and a cap on the Medicaid program for the poor - were dropped at the last minute.

"If the budgetary pressure from both demography and health-care spending is not relieved by reducing the growth of expenditures or increasing taxes, deficits will mount and seriously erode future economic growth," said the Congressional Budget Office this spring in a report on the budget outlook.

The problem is relatively simple: In the next 35 years, as people born between 1946 and 1964 retire, the number of Americans age 65 and up will double. The number of people age 20 to 64 will grow by only 20 percent. And retirees are expected to live longer than ever before.

By 2008, when the oldest baby boomers become eligible to take early retirement under Social Security, the favorable demographics that Social Security has enjoyed in recent years will reverse, and the program will begin paying out more than it takes in. The labor force will grow very slowly between 2010 and 2020 and then almost stop growing between 2020 and 2030. By that year, there will be one Social Security beneficiary for every two workers, compared with five workers for every recipient in 1960 and 3-1/3 workers for every retiree today.

Federal spending on Medicare, Medicaid, and Social Security in 1996 represented 8.4 percent of the country's economy. By 2030, when most baby boomers will have retired, such spending will represent 16 percent. Without a change in policy, CBO predicts, federal debt will hit 160 percent of the economy by 2035 and 200 percent by 2050.

The Medicare problem is immediate. The program's trustees estimate that with no change, the Medicare trust fund will go bankrupt in 2001.

The new budget deal tries to delay that date by, among other things, increasing slightly recipients' monthly premiums and funding the home-health-care portion of the program from the government's general fund.

Sen. Phil Gramm (R) of Texas, who opposes the deal, says transferring home health care to general government revenues is "outrageous." He points out that payments to providers have been reduced "12 times before and it hasn't worked. Nobody believes this is reform."

But real Medicare reform won't come easy. In the past, labor unions and senior citizens' groups such as the American Association of Retired Persons have fought reform tooth and nail.

The Republican leadership and the White House have so far been unable to settle on a process for reform. While many on Capitol Hill believe Congress should bite the bullet and pass a program, Republicans are still shell-shocked over the beating they took during the last election campaign on the issue. They aren't about to move forward without the White House and many Democrats on board.

Suggestions for a bipartisan commission such as that which reformed Social Security in 1986 have gone nowhere so far. But Sen. Larry Craig of Idaho, chairman of the Senate Republican Policy Committee, says discussion of such a commission has recently revived in Congress and at the White House.

"All of us are very aware of that very loud ticking clock out there," Senator Craig says. He says Senate Republicans would support such a commission.

Rob Shapiro of the Public Policy Institute, a New Democrat think tank closely aligned to Mr. Clinton's ideology, says "the president has really done what needs to be done at this point."

"Before you could put together a structural consensus for reforms you had to balance the budget," Mr. Shapiro says. "I don't think the country was willing to accept structural reforms ... so long as there was a suspicion that those cuts were being made to bail out other areas of the budget." Shapiro says that now Clinton and congressional leaders must work to educate the public about the problem and build a broad consensus for reform.

Meanwhile, Senator Gramm vows to work toward a bipartisan agreement on reform in the Health Care Subcommittee, which he chairs. "It's time for us to do what we were elected to do. It's time for us to legislate," he says.