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Some related articles :The Private Interest |
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Goodbye Surplus. Hello, Train Wreck
By:
Howard Gleckman
Washington may have just blown its last, best chance to
fully finance health-care and retirement benefits for 65 million baby
boomers. Addressing those needs will still be possible. But it's going to be
a lot more painful, thanks to a combination of bad luck and short-sighted
tax and spending decisions over the past couple of years. CLOSING TRAP. The idea made a lot of sense. But the opportunity has now been lost. What happened? The economic slowdown and the bear market caused a sharp decline in federal tax revenues. The events of September 11 forced an $800 billion increase in spending on the Pentagon and homeland security. But the biggest reason was that two ill-considered tax cuts slashed $1.7 trillion, or one-third, from the expected federal surpluses. Bottom line: The all-too-brief era of black ink is over. That $5.6 trillion, 10-year surplus will fall to a bit more than $300 billion, according to official Congressional Budget Office (CBO) estimates. Alas, those projections are almost certainly optimistic, since they assume low spending and ignore the high likelihood of more tax cuts -- such as relief from the alternative minimum tax, a painful surcharge that would hit as many as 35 million taxpayers by decade's end if it's not scaled back. More realistically, the nation is looking at annual deficits for the foreseeable future and increases in the national debt through the decade. Goldman Sachs economist John Youngdahl sees yearly deficits in the $200 billion range through 2007. Others, including Ian Shepherdson, chief U.S. economist for consultants High Frequency Economics, forecasts deficits of $300 billion-plus at least through 2004. THE COMING CRUNCH. Even according to the CBO forecasts, the national debt won't get much lower than $3 trillion. If the Wall Streeters are right, it'll balloon to well over $4 trillion. And that wistful hope of getting the debt to zero? Gone with the wind. That, by the way, means the government will have to spend almost $2 trillion over the next 10 years just to pay interest on its bonds. Why should Jane and Joe care? Think of the government as a couple with, say, an 8-year-old. They know that in 10 years, they're going to have to come up with $250,000 to send their kid to college. They also know they're heavily in debt today, thanks to the new BMW and the Caribbean vacations. That family, if it's prudent, will try to reduce its debt now, knowing how tough it's going to be to borrow $250,000 on top of its already crushing loans. They know that if they don't, the interest payments alone will overwhelm them. THREE DIRE REMEDIES. That's the situation Washington is in. Except instead of looking at an unfunded liability of $250,000, the government is looking at a $2 trillion dollar shortfall between the Social Security benefits it has promised and what it can pay. And Social Security is actually the least of its problems. By 2012, the feds will be paying even more in health-care benefits -- $800 billion a year -- just for Medicare and Medicaid than for Social Security, thanks in part to aging baby boomers. And that's before Congress adds popular drug benefits to Medicare -- at a cost of an additional $50 billion a year. Only three solutions are possible. Washington can cut retirement and health benefits for seniors. Want to take odds on that one? Or Congress and the President can raise taxes -- a lot -- on those Americans still working 20 years from now. Or the Treasury can borrow the money. The last two are easier, of course, if the economy is growing fast enough. But the more debt the government sucks up -- money that will be unavailable for business to invest -- the harder that will be. FASTEN YOUR SEAT BELTS. Bush and his allies, of course, argue that the tax cuts themselves will boost economic growth. And, in theory, they can do that. Some, such as tax-rate reductions, will help boost consumption. But many provisions in the 2001 tax-cut measure were nothing but giveaways. For example, no evidence shows that promising to eliminate the estate tax in 2010, at a probable cost of $50 billion a year, is doing much of anything to boost growth. The current economic slump will end, of course. And as growth resumes, tax revenues will rise and federal deficits will flatten out. But America has very likely seen the last of significant budget surpluses. And with their demise, the country has lost its grandest chance yet to avert what will be a political and social train wreck. FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.
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