When giving public or semi-public talks, I have long been asked “What single threat worries you the most? What keeps you up at night?” When I served as a senior CIA official from 2006 to 2013, and after a long career as an intelligence analyst, I felt I needed a national-security-related answer to those questions; so, I said “terrorists with nuclear weapons.”
But there was something else that, even back then, worried me more than the nightmare scenario of a nuclear-related terrorist attack, as devastating as that would be – and that was, and is, the failure of our political leaders on both sides of the aisle to come together, to deal with the most important issues facing the country, and to make compromises that move our economy and society forward.
Why is this a national security issue? Because the most important determinant of a country’s power, and therefore its national security, is the health of its economy and society. Paul Kennedy’s 1987 best-selling book, “The Rise and Fall of Great Powers,” is all one needs to read to fully understand that point. I have seen that dynamic play out firsthand throughout my career, with China being the premier example.
The coming crisis in spending on federal government entitlement programs is one of the most significant issues that we are not facing as a nation. If we do not deal with it, it will have devastating consequences for economic growth. And, it will undermine our national security – both indirectly because of the economic fallout and directly because of the budget impact. On the latter, without entitlement reform, we will simply not be able to fund the defense, intelligence and diplomatic programs that are necessary to keep the nation safe.
Entitlements are government programs where the law as written “entitles” the public to a government payment if they meet certain criteria. The government has no choice but to write a check; it is “mandatory” spending on the government’s part. Entitlement programs include Social Security, Medicare, Medicaid and other supplemental income security programs. Spending on these programs is rising rapidly as our population ages and as health care costs soar. The share of the U.S. population over 65 years of age is expected to rise to over 20 percent by 2030, up from 13 percent in 2020, while health care costs substantially outpace inflation year after year.
According to the Congressional Budget Office (CBO), entitlement spending in fiscal year 2016 (the year ending Sept. 30, 2016) accounted for 63 percent of federal spending, up from 53 percent in fiscal year 2000. With 6 percent of budget going to interest payments on the debt, only 31 percent of the budget was available for discretionary programs, including the defense of the nation, which accounts for over half of all discretionary spending (and which currently is insufficient to ensure our security, according to defense experts, no matter what their political affiliation).
Without entitlement reform, the CBO, in its baseline estimate made in the summer of 2017, projected that in fiscal year 2027, entitlement spending will account for 65 percent of the budget and that interest on the debt, in an almost certain higher interest rate environment, will amount to 12 percent of the budget. That will leave only 23 percent for discretionary spending. These numbers will only get worse in the out years. The recent changes to the tax code are not likely to alter these numbers in any meaningful way.
Calculated as a share of total government revenues, the numbers become even more stark. In fiscal year 2016, mandatory spending – entitlements and interest payments – accounted for 82 percent of revenues, up from 58 percent in fiscal year 2000. By fiscal year 2027, that number will rise to 99 percent, leaving only 1 percent for discretionary spending.
In this environment, the only way to achieve the spending on defense, intelligence, diplomacy and foreign aid that we need to protect the country would be to significantly raise taxes, which would be a further drag on the economy, or to allow the budget deficit to soar even beyond what is currently projected. When interest rates finally begin to reflect the substantial increase in federal debt, the effect will be to slow private investment, thereby slowing long-term growth.
All of this has long been well understood by most members of Congress, but they have not shown the political will to deal with it. It is less well understood by national security experts. The latter need to become educated about it and need to become advocates for reform of entitlement programs – because it is a ticking time bomb to our security.