Entitlement reform Mail House

Chart 1

Key Points

  • Entitlement programs are driving the national debt.
  • Structural reforms to these programs will help beneficiaries and save the most money.
  • If we wait too long, interest rates will rise, and the debt will spiral out of control.
  • But if we act now, we will pay down our debt and boost our standard of living.

Introduction

Entitlement programs are growing so large that they could go bankrupt and spark a debt crisis. At their core, they have structural problems. So to both strengthen these critical programs and get control of spending, we need to make structural reforms.

Not all budget cuts are created equal. Some will save money in the short term—say, in the next ten years. But ultimately, they won’t be enough to get control of the debt.

Structural reforms, on the other hand, may not save much in the short run. But in the long run, they will save much more. Just as a prudent investment gets higher returns through compound interest, structural reforms produce greater savings over time. As a wise man once said, “The most powerful force in the universe is compound interest.”

And it could turn against us. Today, the Federal Reserve is keeping interest rates unusually low. If we lock in structural reforms now, we will help keep interest rates low, which will boost our economy. But this opportunity won’t last forever. Once interest rates rise, debt payments will eat up a bigger slice of the federal budget. In fact, those payments might grow so large that they bankrupt us. Structural reforms are crucial to economic growth, and we have to act now.

But these reforms won’t just cut spending. They will improve our entitlement programs. Today, Social Security, Medicare, and Medicaid can’t keep their promises to the poor or the elderly. If we make the right kinds of reforms, we can pay down the debt and help the most vulnerable.


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