The coming fiscal civil war

Terry Jeffrey
|
Posted: Sep 01, 2004 12:00 AM

 Twenty-five years from now, when the generation of Americans being born today looks back on the record of American politicians now in office, the question of whether a deposed Iraqi despot stockpiled weapons of mass destruction may not seem nearly as important as the question of whether our own leaders ever stockpiled the Social Security surplus.

 Unless politicians in Washington, D.C., start cutting government today, Social Security and Medicare will eventually drive the United States into fiscal civil war. It will not be a shooting war, pitting brother against brother. It will be a taxing-and-spending war, pitting grandparents against grandchildren.

 In Wyoming last week, Federal Reserve Board Chairman Alan Greenspan pointed to the potential conflict in dry terms. "If we have promised more than our economy has the ability to deliver to retirees without unduly diminishing real income gains of workers, as I fear we have," he said, "we must recalibrate our programs so that pending retirees have time to readjust through other channels."

 In the Senate Governmental Affairs Committee July 8, U.S. Comptroller General David Walker colored in the ugly picture. "Between now and 2035, the number of people who are 65 years old or over will double, driving federal spending on the elderly to a larger and ultimately unsustainable share of the federal budget," he said.

 "Our latest long-term budget simulations reinforce the need for change in the major cost drivers -- Social Security and health care programs," he said. ". . . (B)y 2040, absent reform in these entitlement programs, projected federal revenues may be adequate to pay little beyond interest on the debt."

 But even if this generation of politicians sincerely resolved that President Bush's massive new Medicare prescription drug entitlement was the last new program they would ever enact, they and their predecessors have already placed an unbearable burden on taxpayers of tomorrow.

  "The federal government's gross debt as of September 2003 was about $7 trillion, or about $24,000 for every man, woman and child in this country today," Walker testified. "But that number excludes many big-ticket items, including the gap between promised Social Security and Medicare benefits, veterans' health care, and a range of other commitments and contingencies. If these items are factored in, the total burden in current dollars is at least $42 trillion. To put that number into perspective, $42 trillion is 18 times the current federal budget, or 3.5 times our current annual gross domestic product. One of the biggest contributors to this total bill will be the new Medicare prescription drug benefit, whose estimated current-dollar cost over the next 75 years is more than $8 trillion. Stated differently, the current total burden for every American is more than $140,000 -- and every day the burden is growing larger. GAO's long-term budget simulations show that by 2040, the federal government may have to cut federal spending by 60 percent or raise taxes to about 2.5 times today's level to pay for the mounting cost of the federal government's current unfunded commitments."

 If only massive tax increases or drastic spending cuts can sustain the trans-generational welfare state, what are those who believe in freedom to do?

 Answer: Forget tax increases. The combined payroll tax paid by employers and employees for Social Security alone already equals 12.4 percent of a worker's wages. That's too high as it is. A better alternative is to start cutting spending immediately, and begin phasing out the welfare state itself (including by starting to privatize Social Security as President Bush has proposed).

 Congress should repeal the Medicare prescription drug entitlement before it really takes hold. That would eliminate an $8 trillion liability before too many Americans felt they had made too deep an investment in it.

 Then Republicans and Democrats in Washington should jointly resolve to stop using surpluses in Social Security tax revenue to fund current spending and use it instead to pay down the national debt. They should do this against the contingency they may need to borrow again in the future to pay government obligations in baby boom Social Security benefits. This would be just like a family paying down its credit cards so it has room to make new charges if it faces a future emergency.

 Because both Republicans and Democrats have been so profligate, this won't be easy. The Congressional Budget Office estimates the government will take in about $2.4 trillion in surplus Social Security taxes between 2005 and 2014, while indulging in another $4.4 trillion in overall deficit spending. Our leaders are planning, in other words, to put $2 trillion more on the credit card.

 Anybody for shutting down the unconstitutional federal Department of Education? Without cuts like that now, our kids may be taxed out of sending their own kids to college.