The Issue No Candidate Wants To Discuss

There is one topic every presidential candidate has paid lip service to but offered little else.  The incendiary issue threatens the nation's financial security. A former Federal Reserve chairman calls it an "extremely dangerous" risk that could undermine the U.S. economy.

The concern is the unparalleled rise in entitlement costs.  Federal budget expenditures for Medicaid, Medicare, Social Security and food assistance programs were 19.2 percent of the country's Gross Domestic Product (GDP) last year.  In 2005, entitlements accounted for 15.5 percent

Spending on entitlements in the 2015 budget is projected at $2.45 trillion.  That is 65 percent of the federal budget.  Entitlements are categorized as mandatory spending, since the government is obligated to fund the programs.  So-called discretionary spending comprises 29 percent of the budget.

Spending levels for mandatory programs are determined by eligibility rules.  Once Congress sets those guidelines, the amount of money allocated from the federal budget is driven by estimates on how many people are expected to enroll in the programs.  No cuts or increases are allowed.  

Former Fed chairman Alan Greenspan bluntly assessed the issue in a recent interview.  "To me the discussion today shouldn't even be on monetary policy, it should be on how we constrain this extraordinary rise in entitlements."  Greenspan headed the Fed from 1987 to 2006.

In 2014, the government had to borrow $39 billion just to cover the deficit in the Social Security program, the most costly federal entitlement.  And the yawning gap between Social Security taxes and benefit payments is estimated to widen in coming years as more people reach retirement age.

The federal government lumps Social Security with Disability Insurance in the budget.  The two entitlement programs combined are projected to reach $1.1 trillion in unfunded liabilities in the next ten years.  By 2033, 18 years from now, government trustees estimate the programs will be insolvent.

For clarification purposes, an unfunded liability can be a confusing accounting term.  It simply means that the programs will owe more money to current and estimated future beneficiaries than it has funds to pay for those benefits.

Absent some reforms in eligibility requirements, the federal government will be faced with Draconian choices.  It can slice benefits to those receiving Social Security and Disability Insurance by 23 percent across the board or raise taxes by that amount.  Neither choice has political appeal.  

Soaring entitlement costs have increased pressure on the government to keep raising the nation's debt ceiling.  At the end of July, the federal debt had climbed to a staggering $18.649 trillion.  The interest on that debt, $229 billion this year, chews up 6 percent of all federal spending.

In 2015, the government expects to use its credit card to rack up another $583 billion in debt.  The borrowed money pays for 16 percent of the government's budget expenditures.  Despite all the claims to the contrary, Washington continues to spend money it does not have.

This year's $3.8 trillion federal budget is the largest in American history. And no one believes it will ever be lower or remain at the current level. In fact, the Congressional Budget Office (CBO) estimates the country will return to trillion dollar annual deficits by 2025.

The reason for the projection is the aging of the population.  As the Baby Boom generation retires, more people will be tapping into Social Security and other entitlements.  Despite the inevitability, no one currently inside the Beltway or presidential candidate seems willing to offer solutions.

One reason for the do-nothing sentiment is the federal government has benefited from historically low interest rates. That explains why the country has added trillions in debt without wrecking the economy. When rates rise as expected, the interest on the nation's debt will explode.

Ballooning interest payments will consume a larger and larger chunk of the federal budget.  That will make borrowing more money to cover deficits an even riskier proposition.  Each dollar borrowed will become more expensive for the federal government.

Since 72 cents of every dollar collected by the government comes from individual taxpayers, this is an issue that impacts almost every American.  For that reason, those running for president should be required to offer solutions, not just lip service, to the impending entitlement crisis.