[Congressional Record (Bound Edition), Volume 157 (2011), Part 6]
[Senate]
[Pages 7791-7793]
[From the U.S. Government Publishing Office, www.gpo.gov]




                          ENTITLEMENT SPENDING

  Mr. THUNE. Madam President, last week I came to the Senate floor to 
talk about the crushing burden of debt that will soon be coming our way 
because of government spending, mainly driven by entitlement programs. 
I noted that our unfunded liabilities in Medicare and Social Security 
are over $40 trillion. In fact, last week we received the reports from 
the Medicare and Social Security trustees which noted that Medicare is 
already running a cash deficit of about $46 billion. Social Security is 
running a cash deficit of about $32 billion.
  For those who think we do not need to do anything because the so-
called trust funds are not going to be in trouble until some point into 
the future, I think the important point to remember is that the trust 
funds and the IOUs that are the trust funds are not an economic asset 
that can pay cash benefits. At some point there is either going to have 
to be a massive tax increase, a huge reduction in benefits, or an 
incredible amount of additional borrowing.
  What we project will happen with Social Security at some point in the 
future is that there will be about a 20, 25 percent reduction in 
benefits when we hit that wall, which suggests we ought to be taking 
steps right now to avoid that. The important point is, when we start 
seeing cash deficits where the payroll taxes that are coming in no 
longer exceed the amount of benefits they are paying out but, rather, 
are running deficits, that also adds to the overall deficit we are 
dealing with as a country.
  We do not have the luxury of time. We cannot afford to wait. This is 
an issue that is upon us. Social Security and Medicare reforms are 
issues that need to be undertaken. If we do not do that, as I mentioned 
last week as well, we will see enormous increases in the amount of debt 
and the amount of deficits as a percentage of our GDP.
  In fact, in the year 2035, if we do not change our ways, the amount 
of government spending--and this is under the current projection, which 
I believe is very conservative, and probably these numbers could be 
much worse--would comprise 35.2 percent of GDP. Government spending 
would comprise 35.2 percent of GDP, which is 60 percent higher than the 
historical average. The historical average of what the Federal 
Government spent as a percentage of our entire economic output for the 
last 40 years has been 20.6 percent. This year it is over 24 percent. 
If we stay on this current trajectory, as I said, in the year 2035, 
based on what I believe are very conservative assumptions--and this 
could be much worse than that--we would be looking at over 35 percent 
of our entire economy spent just on the Federal Government.
  As I said, that is 60 percent higher than the historical average. In 
the same year, deficits would be about 16 percent of GDP, and debt to 
GDP would be 185 percent. We would actually have a cumulative debt that 
is almost twice the size of our entire economic output, our entire GDP 
for that year.
  These are more than just numbers for economists to look at; these 
have real impacts in real time. They affect people across the country 
today. I wanted to point out again, as I have mentioned in the past, 
the study done by economists Rhinehardt and Rogoff, which took a good 
look at countries, and particularly developed countries, that have 
acquired or accumulated the sort of debt level we are looking at in 
this country and the impact that has had on their economies. And in 
their analysis and their study, they came to the conclusion that when 
you reach a certain level of debt to GDP--in this case, 90 percent debt 
to GDP--you lose 1 percentage point of economic growth. In other words, 
economic growth will be 1 percentage point less than it would otherwise 
be because of that high GDP debt level the country is sustaining. They 
say that is at 90 percent. If we look at where we are today debt to 
GDP, we are about 93 to 94 percent. According to the White House's own 
economist, every time you lose a percentage point of economic growth, 
it costs you about 1 million jobs.
  So having the kind of debt level we are carrying today creates a 
cloud over our economy, reduces economic growth, and reduces jobs. It 
is costing us job creation in our economy, which I think is what most 
of us believe we should be focused on, and if we are going to focus on 
jobs, we have to say there is a correlation between spending, debt, and 
jobs. I believe the sooner we acknowledge that, the quicker we address 
that, the better off we will all be and the sooner we will see the 
economy start to recover and expand and create jobs again. That is the 
impact that is happening now, and it only gets worse if changes aren't 
made.
  When the government borrows money, obviously there is an impact in 
the private economy: there is less money for private companies and 
individuals to invest in equipment, plants, housing, and training. It 
crowds out these investments and instead allocates money--spends 
money--on less efficient, less necessary, duplicative, and oftentimes 
downright wasteful programs and projects.
  If we don't get our arms around this level of spending and debt, it 
also means higher interest rates for individuals who want to borrow to 
buy a home.
  It is clear to individuals and businesses across the country--even if 
it isn't clear to everyone here in Congress--that the government cannot 
continue to spend ever-increasing amounts of money without raising 
taxes. That creates uncertainty among individuals and businesses across 
this country and acts as a disincentive for them to invest. So because 
you have uncertainty about what the impact of all this spending and 
debt will have on future taxes, a lot of capital continues to sit on 
the side lines not being deployed, not being put to work. That is 
happening simply because there is this uncertainty about what is going 
to

[[Page 7792]]

happen and whether Washington is serious about getting this spending 
and debt issue under control and focusing on the fiscal problems we 
have as a nation.
  I mentioned last week that Social Security benefits would 
automatically be cut by over 20 percent if that program is not 
reformed. This is not the result of the House-passed budget, contrary 
to what many are saying. This is the result of the current situation we 
face today with Social Security. Likewise, according to the alternative 
scenario of Medicare's own actuaries, the health care bill that was 
passed last year would lead to significant numbers of providers 
becoming unprofitable and who would, presumably, stop providing 
services if health care costs are not contained.
  This assumes we don't have a debt crisis. The former Chairman of the 
Federal Reserve, Alan Greenspan, said recently that the odds of a debt 
crisis happening in the next 2 to 3 years are about 50 percent. So if 
you take that analysis and you take what Standard & Poor's has said 
about America's credit rating--they have warned of a possible downgrade 
in the U.S. credit rating in the next 2 to 3 years if serious changes 
aren't made--I think you can see why there is such a cloud hanging over 
our economy right now.
  Some believe this debt crisis may not occur for a few years down the 
road. But I think one thing we know for sure is that it is coming. It 
is predictable. We don't know exactly when, but we know it is coming 
because you cannot continue to have these types of signals, this kind 
of not only anecdotal information but hard data describing the current 
state of our economy, the current state of Federal spending, the amount 
of debt to GDP we are continuing to increase year over year, and not 
believe we will have some significant and measurable impacts on our 
economy.
  That is why it is so important that we take the steps necessary to 
avert this crisis. If we don't, we know what will happen. As our debt 
burden increases, investors from around the world are going to 
increasingly demand higher yields to lend us money, and that will 
further exacerbate our deficits. Interest alone will consume increasing 
amounts of our revenue until we can no longer pay our bills.
  We have seen this happen in countries around the world. We know the 
magnitude of the actions those governments have had to take in response 
to debt crises in other places around the world.
  Greece, for example, was forced to take loans out from the 
International Monetary Fund and has had to impose a variety of 
austerity measures. These austerity measures have included laying off 
public sector employees, cutting their pay, freezing their pay for many 
years at a time, a 2-percent increase in their VAT tax--they have a 
value-added tax in that country--and a 10-percent increase in other 
taxes. They have also made dramatic cuts to pension programs and 
reforms to entitlement programs as well. Yet they are still paying, 
after all of that, very high interest rates. The yield on 2-year debt 
is over 24 percent in Greece.
  In Ireland, they had to implement austerity measures of more than 9 
percent of GDP--9 percent of their entire economy. In the United 
States, if you were to translate that into the impact it would have on 
our economy, that is the equivalent of raising taxes and cutting 
spending by $1.3 trillion in 1 year--an astounding amount. But that 
wasn't enough. They are looking to implement another austerity plan of 
tax increases and spending cuts. That one is estimated to cost the 
average family in Ireland $5,800 a year.
  Those are the types of measures that have been forced upon, imposed 
upon some of these other countries around the world because they have 
seen the debt crisis we are trying to avoid in this country. At the 
same time, after having taken all these austerity measures, they have 
seen massive contractions in their economy, because we all know what 
happens when you start raising taxes and you create the amount of 
economic uncertainty I described earlier. It becomes very difficult for 
small businesses to invest and to create jobs. So, not surprisingly, 
you see these austerity measures leading to violence, protests, and 
general discontent. It appears now that Greece is seriously considering 
at least a technical default on some of their debt.
  So that is, I guess, a picture of what our future will look like 
absent changes. We will have a shrinking economy, fewer government 
services, and dramatically higher taxes. That is what the experiences 
have been in some of these countries I just mentioned, and that is what 
we are headed toward absent serious, meaningful action in getting our 
spending and debt and our entitlement programs under control.
  There is no reason to go down this path. The Senate will have the 
opportunity over the course of the next few months, at least, I hope, 
to vote on legislation that will start to address not only the near-
term issues of discretionary spending and capping that and capping it 
into the future, in the near term and midterm, but also address the 
issue of entitlement reform. As I mentioned earlier, we cannot solve 
the debt problem, the fiscal problem, and the crisis our country faces 
without taking on the issue of entitlement programs. If we don't, our 
future will look like that of Greece and Ireland.
  Today, we will vote--today or tomorrow; I am not sure exactly when--
on a series of budget proposals which are, in each and every case 
somebody's attempt to address this issue. We saw the House of 
Representatives act on a budget earlier this year--the so-called Ryan 
Budget--which they passed. We will get a chance to vote on that in the 
Senate. We have a couple of our colleagues on the Republican side who 
have come up with their own ideas about budgets and what we might do to 
address this fiscal crisis. We are going to vote on the proposal the 
President put forward, which is completely inadequate to the challenge. 
In fact, it increases spending over 10 years, dramatically increases 
debt, and dramatically increases taxes, which would have an incredibly 
detrimental impact on the economy. That is what the President put 
forward. We will vote on that today as well. Having said that, all 
these votes--although they are, I suppose you could argue, important in 
some respects--are going to end up being more symbolic votes because I 
don't think any of them will get the necessary votes in the Senate to 
pass.
  What is ironic about the debate on budgets this week is that the only 
budget we are not voting on is a Senate budget. We have not had a 
budget now in the Senate for 756 days. This government spends $3.8 
trillion a year, and yet it has been 756 days since the Senate has 
passed a budget. So we have a couple of our Republican colleagues who 
are putting forward alternatives, we have the House that has put 
forward an alternative, but the Democratic majority here in the Senate 
has not, for 756 days, moved to bring a budget to the floor so we can 
have a debate and vote upon the fiscal priorities for this country and 
how we are going to spend $3.8 trillion of the American people's tax 
money. That is a stunning development. I am on the Budget Committee in 
the Senate, and we have yet to even have a markup, and I don't 
anticipate we will in the near future.
  Having said that, we cannot afford to wait to take on this Nation's 
fiscal challenges. I hope that, absent action on a budget here in the 
Senate, these discussions that are occurring right now between the Vice 
President and Senate leaders will yield a result that will enable us to 
at least move forward and address these fiscal issues, but it doesn't 
negate the responsibility we have as Senators to put forward a budget 
and to debate that budget.
  Ironically, we are going to vote on the budget passed by the House of 
Representatives. I don't know this for a fact, but I have heard this is 
the case, that it will be the first time ever that the Senate will vote 
on a budget passed by the other body--in particular, by the other body 
when it is controlled by the other political party. This will be the 
first time in history. I think the Democratic leader wants to do that 
to make some political point, but I think we all know that our not 
passing a

[[Page 7793]]

budget or at least debating a budget here in the Senate is a complete 
abdication of the responsibilities we have as Senators to be good 
fiscal stewards of American tax dollars.
  I would just close again today by saying we have seen our future. You 
can look at what is happening in Greece, you can look at what is 
happening in Ireland, and you can look at the types of austerity 
measures imposed by outside entities who have said: You make these 
changes or you are not going to continue to get IMF funding, for 
example. And even after all that, you are still looking at these 
interest rates in the 20-percent range, you are looking at economies 
that continue to contract rather than expand and grow. We need to 
create the conditions here that will enable our economy to grow and to 
create jobs, and it starts with getting Federal spending and debt under 
control.
  One final point I will make, and this has to do with an issue that 
pertains to my State of South Dakota, but I think it ties into the 
broader point I am making about the economic uncertainty that is being 
created out there today for businesses.
  There was a piece of legislation that passed a little over a year ago 
here--the Credit CARD Act--which put in statute a number of changes 
with regard to subprime credit card companies. That is all fine and 
good. I voted against it. We have companies in South Dakota that play 
by the rules, they have abided by the laws, and they are a heavily 
regulated industry. Yet Congress decided--over my objections--to move 
forward with legislation that would change the rules by which they 
play.
  Well, that was all fine and good, but when it came time to implement 
those regulations, the Federal Reserve decided the statutory framework 
that was created wasn't quite good enough. So the initial regulations 
that were out there--this company reacted to those and tried to adapt 
its business model, but the Fed decided that wasn't good enough, so 
they took regulatory steps that went beyond what the statute had called 
for and made it even more difficult.
  We predicted this at the time--we said: This is going to cost jobs in 
our State of South Dakota. Well, just this last week that particular 
company announced they are closing their operation in Spearfish, SD. 
That will impact 330 jobs in a town of about 10,000 people. 
Incidentally, the mayor of that city worked for this company. And there 
is a story here from the Rapid City Journal which describes the 
economic impact of these job losses and what it will mean to that 
community and to the entire area.
  I can't help but think this is just another example of regulatory 
overreach, of regulatory agencies deciding they know best and going 
above and beyond what Congress called for in terms of legislative 
requirements and the legislative intent and taking regulations beyond 
that. So we have real-world impacts on people out there as a result of 
decisions made here in Washington, DC, and when we tried to make these 
arguments to the regulators, they couldn't have been less concerned 
about jobs. We said this is going to cost us jobs.
  This is just the beginning, by the way. There is another location in 
Huron, SD; Dakota Dunes, SD; and Sioux Falls, SD, and I think this is 
just the tip of the iceberg of what we will see in terms of job losses 
caused by regulatory overreach because a Federal agency decided they 
knew best and went above and beyond what even the U.S. Congress said 
with regard to this particular issue.
  These are, again, real-life examples of decisions made here in 
Washington, DC, and the impacts they have in the real world. I hope we 
can put policies in place here that will encourage economic growth and 
job creation, not hinder it, not inhibit it.
  I yield the floor.
  The ACTING PRESIDENT pro tempore. The Senator from Nebraska.

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