| Fiscal Policy and the Economic Outlook in 2005
Eugene Steuerle, Ph.D.
 The current budget squeeze facing the White House and Congress is a reflection of several changes in government programs, the economy and the general population's age and health, according to Gene Steuerle, of the Urban Institute. Steuerle reviewed how these factors will present substantial challenges to the White House and Congress as they seek to develop a budget and cope with a rising deficit.
There are several reasons why the federal budget is under pressure, Steuerle said, and why Social Security and health care costs consume an increasing amount of all government spending:
• People have been retiring earlier and living longer (on average, four years longer than when Social Security was created).
• Birth rates have fallen.
• Benefits continue to rise, as do health care costs. Social Security, Medicare and Medicaid costs are increasing faster than the economy, with the biggest increases in health care.
Steuerle stressed that the single most important factor driving Social Security spending is the fundamental change in the size of the workforce and the size of the retired worker population. “Since Social Security was created we have gone from three workers per retiree to two workers per retiree,” Steuerle said. The result is that people are receiving Social Security benefits for more years than was the case decades earlier.
Left unaddressed, Steuerle predicted that rising Social Security and health care costs could eventually consume almost the entire budget.
From 1997 to 2004, Steuerle said, “we have been on a spending spree that is unprecedented—that includes tax cuts and benefit increases.” As a result, any spending on education,
the environment, welfare, community development and most domestic programs must be paid for “out of deficits, by rescinding tax cuts or implementing tax increases, paring the growth in retirement and health care spending or supporting a very small international defense presence.”
Increasing the retirement age is the most balanced approach to cutting Social Security costs, Steuerle suggested. Doing so reduces benefits paid and increases revenues collected.
Eugene Steuerle is a Senior Fellow at the Urban Institute, co-director of the Urban-Brookings Tax Policy Center, President of the National Tax Association, and a columnist who has published over 600 briefs for Tax Notes Magazine, the Urban Institute, and the Financial Times.
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