www.fortune.com/fortune/s...-2,00.html
Hear No Deficit, See No Deficit, Speak No Deficit
Neither party is willing to discuss the wrenching financial choices we must make.
By Peter G. Peterson
Fortune
There is an important question that, if asked of either presidential candidate during the upcoming debates, is guaranteed to elicit an evasive nonanswer. It goes something like this: "All the fiscal experts agree that recent tax cuts and surging pension and health-care spending will trigger wildly unsustainable deficits as the baby boom retires. The deficit explosion, they all say, will occur whether or not your announced program for the next four years is implemented. Do you have any concrete strategy for closing that fiscal gap? If so, would you share it with the American people?"
Neither of our two political parties welcomes such a question, and therein lies a tragedy. Both like to talk volubly about the taxes they will cut and the benefits they will expand—yet this is a future that will never happen. Both dread any discussion of wrenching fiscal adjustment—yet this is the future of higher taxes and pared-back programs that we actually face. All the official reports, from the Congressional Budget Office to the Fed to the IMF, keep returning to the same bottom line: The longer we put off any sacrifice, the harder will be the blow to our nation, our economy, and our lives. In fact, Democratic and Republican leaders are handling the challenge as they might an elephant in the boudoir—by pretending it isn't there and hoping no one dares mention it.
Think I'm being alarmist? With this year's record federal deficit, we are already effectively borrowing to fund all our domestic discretionary programs. By 2020 we will be borrowing to pay for our defense programs as well, since revenues by then will cover only benefit checks and interest on the national debt. For those who want the melancholy figures, the combined cash balance of Social Security and Medicare together moves from a modest annual deficit of $25 billion in 2003 to an unthinkable annual deficit of $783 billion in 2020. According to the trustees of the Social Security and Medicare systems, the present value of the future deficits in the two programs—they are, of course, unfunded deficits—has expanded alarmingly in recent years and now stands at $74 trillion, a staggering number that far exceeds our national net worth ($43 trillion). Technically, in other words, we really are bankrupt.
David Walker, comptroller general of the U.S. General Accounting Office, holds a 15-year congressional appointment and therefore is beholden to no one. His most recent budget projection shows that by 2029, the year the youngest boomer turns age 65, the federal deficit will hit an economy-shattering 14% of GDP. And this nightmare scenario is an "autopilot" projection—that is, it assumes no new programs and no rise in interest rates. "We cannot simply grow our way out of this problem," insists Walker, now a zealous and superbly informed crusader for fiscal sanity.
Both parties have good reason to hide their own complicity in steering us toward this future. In four short years a Republican administration and Congress have taken the ten-year budget outlook from plus $5 trillion to minus $5 trillion, thereby extinguishing the party's already fading reputation for fiscal stewardship. GOP leaders have pushed every deficit button they can reach—lower taxes, higher defense spending, higher benefits (including the new Medicare prescription-drug benefit), and higher discretionary spending (both war-related and not). By voiding the congressional pay-as-you-go rule, they opened the floodgates to both permanent tax cuts and permanent benefit expansions. According to the conservative Cato Ins ute, they have presided over a "spending explosion."
As for the Democrats, they propose to repeal only part of the Bush tax cuts (the part that goes to "the rich"—good luck!) and spend more than all of those savings on more troops for the military, a giant new health-care program, and more benefits for veterans and colleges and kids. The Democrats have seldom met an en lement they didn't want to expand. With not a word about controlling the unsustainable costs of the current Medicare program, they mau-maued the Republicans into expanding the Medicare drug-benefit proposal into an unfunded $8 trillion burden on future taxpayers. (That's right, the officially projected liability for just this one new benefit, Medicare Part D, is roughly twice as large as our formal ac ulated national debt!) And then their complaint was that the benefit didn't go far enough.
Spokespersons for both parties try to excuse this irresponsibility. Some say that these long-run budget forecasts are too "uncertain" to be taken seriously. Nonsense. The aging of America is about as close as social science ever comes to a certainty. Absent a Hollywood catastrophe—a colliding comet or an alien invasion—it will surely happen.
Others say that large budget deficits don't hurt us. But of course they do, by suppressing domestic investment and making us dangerously dependent on a floodtide of foreign borrowing. At 5.4% of GDP, our current-account deficit with other nations now far exceeds our previous borrowing high-water line—3.7% in 1987, the year of the Black Monday stock market crash. During that period the dollar also fell by a third.
Back then we called them our "twin deficits." So, should we still? Thanks to our policy-driven budget deficit (twin No. 1), the U.S. net national savings rate has dipped below 2% of national income for the first time since the early 1930s. This savings vacuum, in turn, sucks in foreign capital through our trade and services deficit (twin No. 2). When foreigners begin to tire of acquiring our dollar assets, the game will come to a sudden and perhaps calamitous end. Hopefully, by acting now on fiscal policy, we can resolve this danger on our own terms and on our own schedule. But to do that means getting our political leaders and the public educated and aroused.
To that end, I have a suggestion. Two years ago Congress and the President established a highly credible, bipartisan national commission on the collapse of the Twin Towers. The 9/11 commission's now released report is waking up the nation to what leaders of both parties have done wrong on national security—and instructing them on how they can do it right. Our political leaders should commit to appointing a similar commission on the twin deficits. Let's learn how we can do fiscal policy right. Only this time around, let's not wait until our budget and the global economy lie in a tangled wreckage. Let's issue the report and wake up the nation before the day of reckoning arrives.
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Peter G. Peterson, Secretary of Commerce during the Nixon administration, is author of Running on Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It.
While this is true, most Americans(this includes most in this forum) have spending habits that should prevent them from criticizing the Government. When people get their personal finances straightened out, then they will be in a position to give direction to the Government. Think about it! How many in here have no deficit? Don't do as I do! Do as I say!:wink
When was the current deficit created?
Could it be that it's happened under DUBYA!!!??
Yeeeeeeeaaaaaaaaaaahhhhhhhhhh!!!
regardless of who it was created under, at some point some programs will have to be eliminated in order for us to head this off. i'm not holding my breath.
Of course those programs that will be eliminated will be those that most help the lower class.
Cut all the freakin' massive tax breaks that corporations receive while they are reporting huge profits.
You might want to re-read the article, Joe. The unfunded liability (the present value of the projected deficits) for the en lement programs (Social Security and Medicare) is around $74 Trillion.
If you want a culprit, I would start with the politicians who created those programs and every politician since who has fought mightily to protect the status quo.
If you want to blame Bush for something that is directly responsible for this looming mess, blame him for expanding Medicare to help his electoral prospects.
It seems that this happened during a GOP president and a GOP congress.
While a lot was out of their control (dot com bust and 9/11), it was compounded by foolish decisions: overgenerous tax cuts, Medicare prescription drug benefits, and Iraq war.
I agree that the Democrats don't want to talk about it and are making all sorts of promises they can't keep. I think the best we can hope for is Kerry as president and a GOP congress.
Medicare and SS were not created during the current administration. The primary cause of this 'problem' is the amount of spending (aka "benefits") required.
This problem has been around for some time. A real reason to be pessimistic about the chances for any real reform is that Republicans are starting to act like Democrats when it comes to en lements.
About the only good thing that Bush did with respect to the en lements is not expand Medicare as much as Kerry and his ilk wanted.
But it's ok, someone will eventually pay the taxes for all this. Perhaps it will be the mythical 'evil rich'...
Well combine the Bush tax cuts and the soaring federal deficits and you go from one method of financing government (which we used to call it a progressive income tax) to another method—consisting of loans from the wealthy—and interest payments to them from everyone else.
And we will be pouring billions more into Iraq while those at home suffer the consequences.
But I'm no economic expert as you can see.
Um no. Why does the federal budget matter when it comes to funding the en lements to begin with? Think about that for a minute.
Were not the payroll taxes supposed to fund those?
The concept of those programs were flawed to begin with.
Do you think that expanding Medicare was a good idea?
That's good Joe. That's the federal budget. What about the en lement programs?Well combine the Bush tax cuts and the soaring federal deficits and you go from one method of financing government
(which we used to call it a progressive income tax)Um, it still is. Quite heavily so.
To pay for what? Everything that your ilk thinks the government should provide. Shifting the blame to someone else is absurd.to another method—consisting of loans from the wealthy—and interest payments to them from everyone else.
Yes, I do.Do you think that expanding Medicare was a good idea?
medicare is not worth it. socialized medicine will send us to poverty.
It won't send me to poverty.
I believe our senior citizens are worth it.
Perhaps if our senior citizens were allowed to freely purchase cheaper drugs from Canada it would lighten their burden.
Perhaps when we are older we will see things differently.
the rest of the free world seems to be doing just fine with itsocialized medicine will send us to poverty.
Addressing the unfunded en lement program liabilities by increasing them makes little sense. What we are seeing is that some on the left want to shift those programs from being funded by the workers who will themselves one day receive benefits to one being funded by "the rich" through federal income taxes.
And portraying the idea that expanding en lements falls under the banner of fiscal responsibility is quite disingenious, to say the least.
Sure, if you feel like waiting a year for heart bypass surgery.the rest of the free world seems to be doing just fine with it
You might want to learn a bit more about the subject.
Part of the problem in all this is the pharmaceutical companies that are extorting insurance companies and the general public with astronomical medicine costs.
They have a captive audience, I'd argue it's really price gouging. Those medicines don't cost what they charge the insurance companies or the general public. I have a friend who's a pharmacist, and she says most medicines are marked up upwards of 1000% over manufacturer's cost.
I know it'll never happen because of the PACs running around Washington protecting the pharmaceutical industy, but I'd like to see the government nip this price gouging in the ass.
Something that costs them $8 to produce shouldn't be costing you, me, or our medical insurer $70 to buy.
Well Joe, you know what? You are free to take your money and give it to all of those great senior citizens.It won't send me to poverty.
I believe our senior citizens are worth it.
As should you. :p
why all the fancy words. Can you explain it...like I'm a four year old.
AHF, part of that is certainly IP law and part of it is the fact that so many people use health insurance in this country for routine health expenditures. The incentive is not there in a 3rd party payer system to help keep demand in check.
You want it simple? Here it goes: those receiving benefits will demand more and more and those who have to pay those benefits will get screwed. That means payroll tax rates will go up and so workers will be taking home less and less from their paychecks.
Which of course creates ever increasing dependency on those en lement programs.
and where is your proof of this? how long would it take here to get it done? what if you needed the surgery and had no coverage at all?Sure, if you feel like waiting a year for heart bypass surgery.
I don't think Medicare (minus new drug benefit) and SS can be blamed for the current deficit. Clinton had surpluses.
Regarding far-in-the-future deficits, if they are truly going to be that bad, then Bush's tax cuts are even more foolish, trading lower taxes now for even higher taxes later (when he leaves office).
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