"Without savings, there is no future" – Alan Greenspan
If some of you wonder why I'm obsessed with the rapidly increasing government spending and debt, I'll try to explain it in this post. I'll try to explain what the implications of this unsustainable fiscal irresponsibility will be, what it will mean for the future. There is no bigger long-term threat we face as a country, other than certain national security issues (such as terrorists detonating wmd inside the U.S). Lots of the information contained in this post can be found in The State Of The Union's Finances, A Citizens Guide, put out by the Peter G. Peterson Foundation, whose CEO is former Comptroller General David Walker (who everybody in the country should be listening to. I'd make him the next President if I could).
Let's start by defining our financial problem. The federal government is nearly $12 trillion in debt, which is 85% of our GDP. That's bad enough in itself, but about 50% of our debt is owed to foreign countries. The only other time in American history when our debt was this high was during World War II, when it was 122% of GDP. Back then, however, we didn't owe the money to foreign countries. We owed the money to Americans. We weren't selling our country to China and others, as we are doing now.
What's worse than the debt we're in is where we're heading. The following chart shows the projected federal deficits over the next decade:
At this rate, our debt will be 150% of GDP by 2020, far higher than every before in our history. If we continue on this path, our debt would be 350% of GDP by 2050. Even worse than the our annual deficits are our unfunded entitlement liabilities. These are spending commitments the government has made but does not have the money to pay for. They are growing at a rate between $2-3 trillion per year even if we had a balanced federal budget. Currently, the unfunded liabilities stand at roughly $56.4 trillion. Medicare is $38 trillion of this amount. If we add all the unfunded liabilites and our federal debt together, it comes to a $184,000 debt for every single person in the United States, a $435,000 debt for every fulltime worker, and a $483,000 debt for every household. Don't forget that in 2008, 81% of federal taxes were paid by individuals (45% in individual income tax, 36% in payroll taxes). Taxes will have to go up, WAY up. Because rising tax rates have an economic dampening effect, the revenue return lessens, forcing taxes rates up even more, which dampens the economy even more, which forces tax rates up even more, and so on and so forth. Trying to solve the problem via taxation alone will result in an endless downward economic death spiral.
The debt projections show that by 2028, our historic levels of taxation (about 18% of GDP) will not even be enough to cover interest on the debt, Medicare, Medicaid, Social Security. There won't be any revenue left for education, defense, homeland security, infrastructure, or any other government function. Nada. Interest on the debt will eventually become our single largest government expenditure. That is money flushed down the toilet, providing no government service to any American citizen, and a lot of that interest will go to foreign countries. This is a recipe for certain disaster. If it's not addressed, it will mean the end of our Republic. We will collapse under a mountain of debt. This is not only deeply irresponsible, it's immoral. We are dooming our children's futures. The baby boom generation is on path to leave the country far worse off than they found it, the antithesis of the American dream.
We are showing few signs of reversing the trend of irresponsibility. In the last two years, baseline federal government spending has increased by 20% during a time of no inflation. This is astounding. This number doesn't include TARP or stimulus packages to fight the recesssion. This is just an increase in the annual ongoing cost of the normal operations of the federal government, and it is completely out of control.
There are three primary problems – 1) out of control government, 2) demographics, 3) rising health care costs. Regarding demographics, there are 77 million baby boomers in the country (about 1/4th of the entire population). Over the next decade, those baby boomers will be retiring. On the bright side, all those retiring boomers will take care of our unemployment problem (we will probably need even more workers than are available), but all those retirees will put tremendous pressure on our entitlement programs.
There is no single feasible solution to the problem. We can't grow our way out of it. We can't tax our way out of it. We can't even cut government spending to get out of it. We have to take a synergistic approach. We need to re-prioritize everything from the ground up. We have to cut government spending to the essentials. We have to implement pro-growth business policies. We have to reign in health care costs. We will also have to, as much as I hate to say it, increase levels of taxation to get more revenue. We should restructure our entire tax revenue system so it's the least regressive and the most efficient. I have read that only 76% of our taxes are currently collected. The rest fall through the cracks, via offshore tax havens and various other collection failures.
The other thing that is essential is to forget all about partisan politics, and focus on fixing the problem instead. This is not a partisan issue. It's an American survival issue. We need the President to make this a highest priority (hey, it could happen). The tax cut and spend Republicans have to give it up. The tax and spend even more Democrats have to give it up. Our country is at stake. Yes, it's going to be painful, but we have no other choice. Any political party that stands in the way must be moved out of the way. The American people are catching on. This is also what the Tea Party movement is really about. It's about restoring fiscal sanity to this country before it's too late. The longer we wait, the harder it's going to be to fix this. Where we're at right now with the debt bomb is relative to where we were with the housing bubble six-eight years ago. We don't want to wait until it explodes in our faces before we act. We want to act now, or the next recession will make this one look like a walk in the park.
{ 25 comments… read them below or add one }
No question about it…..30 years of neglect and abuse have left us in a fiscal mess.
But have no fear…..fiscal scolds in D.C., including the new conservative-right president, will shortly convene their very responsible Fiscal Summit. I'm sure that Medicare, Social Security, Medicaid and all domestic programs will be on the chopping table.
One thing is for sure though, ……wars of imperialism staged from our 700 worldwide military bases, hundreds of billions in private defense contracting, and giveaways to banksters, insurance, energy and telco will be unaffected.
You can take that to the bank.
P.S. Pete Peterson is the biggest hack for the wealthy alive today. Anyone who takes him seriously….is not serious.
OK Rev – for argument's sake let's assume everything in your war of imperialism rant is just as you claim. Compare that number, whatever it is, to the entitlement projections for social security, medicare, medicaid, welfare, and the interest on the national debt (which is the point of this article). Your argument is irrelevant (as usual) because it pales in comparison to the real threat of this unbridled spending and the interest on the national debt.
The problem, as King illustrates so well, is multifaceted. The solution, therefore, has to include both an increase in revenue along with real reductions in spending. Sadly, our 'leaders' in both parties lack the will to address these problems in a non-partisan way.
Lastly, I rechecked the constitution (what's left of it) and found that only Congress -not the President – has the power to authorize spending. If you're really looking for someone to blame for runaway spending, that's the group you must hold accountable.
To quote George Soros( a person I loath but I have to agree) " The American people are so intent on feeling good they ignore reality".
Excellent post King but if I may add one more huge drain on our resources. Once the illegals are granted amnesty the costs of providing for these individuals and the subsequent arrivals through chain migration will futher add to the debt.
angryc,
I agree with you about the illegals. Those aren't the people we want here to drain our resources even more. But a decade from now, after the boomers retire enmasse, we may want to look at increasing legal immigration to bolster our workforce and add to our economic growth. During yesterday's Senate hearings on the budget and debt, Sen. Lieberman made the comment that almost half of our college Phd's are foreign nationals (although I found that statistic nearly unbelievable), and the majority of them leave the country after they are finished with college. Those are the types of people we want to keep here. America's future will depend upon an innovative and educated labor force. The days of high wages for unskilled labor jobs are over. There are too many countries that still pay virtual slave wages. We can't compete with the rest of the world by lowering wages. That will reduce our standard of living. We can only compete by being the best, brightest, and most educated.
The Rev's comment illustrates the difficulty we face in addressing the debt problem. He immediately went into divisive partisan mode, even attacking Pete Peterson, who is pointing out the debt problem, as if Peterson is making it up or something. Partisan politics is so ingrained in certain people and has them so deluded that they can't even think straight.
"Democracy must fail when the common people discover the largesse of the public coffers."
Detoqueville
I don't need a lecture about Peterson. His only reason for being is to reduce taxes on rich Americans and huge business conglomerates. If that means stripping millions of Americans of SS and Medicare benefits…then so the hell be it, according to Petey. He is not an honest broker….and that's why Senate & House Republicans quote him so often. Just like the Lewen Group. Jesus.
I agreed with King that there is a fiscal problem. It took a long time for it to develop. And during that time wealth has moved into the hands of the already wealthy in record percentages. You don't have to be Einstein to see where the first line of attack should be.
Defense accounts for $1 trillion of spending Each. Freakin'. Year.
That's where we should start….after raising taxes on the wealthiest.
Also, I'm for some protectionism to return manufacturing jobs back to the U.S. Jobs will increase revenue.
@Rev..at least we agree there's a problem. Seems to me though the origins began even farther back than what King cited, to the spending associated with LBJ's Great Society failures. If we're going to debate this though, it's important to at least agree on numbers. According to the DOD comptroller, the Defense budget for 2009 is 552 billion (1), a large number no doubt, but that seems to contradict your histrionics. Add in an additional 105 billion(2) in additional appropriations for Iraq and Afghanistan (our wars of imperialism) in 2009 and you are still short of a trillion by 350 billion or so.
This amount is roughly the equivalent of the 2009 interest on the national debt (260 billion), Unemployment / Welfare expenses (360 billion), and Medicaid (224 billion), but these expenditures are never mentioned in your one sided view of the problem.
You also seem to ignore the main point of Kings post, which is at a certain point along the path we are on you could confiscate the wealth of all Americans and still not be able to meet the obligations of servicing the debt.
About your protectionism fantasy – I'm sure China would be all in favor of that brilliant move. Given our dependence on foreign capital investment we're really not in a great position to start dictating protectionist terms to those trading partners.
Since we're both dreaming, my wish would be for a return to two parent households and some sense of personal responsibility and accountability.
Get. A. Clue.
Sources:
(1) http://comptroller.defense.gov/defbudget/fy2009/FY09Greenbook/greenbook_2009_updated.pdf
(2) http://appropriations.house.gov/emergency_supp.shtml
The Great Society has made your wish for two parent households as much a pipe dream as balancing the budget, Irreverend. LBJ was one clever segregationist.
Amen, Irreverend
However this concept is under daily assult both directly and indirectly and to voice your sentiments brands you by most of those on the left as a simplistic person that lives in the past.
Thanks larry & a.c.! I said I was dreaming
BLOMDisinformation:
Explain to me why reducing taxes on the rich is so bad?
For example, is it not true that the top 1% pay 39% of the income taxes, and that is up 2% from before the Bush tax cuts? And the top 25% pay 86% of all the income taxes collected, again up 2%. What does this mean, could it mean that you are a liar and a fraud?
Have you ever heard of the Laffer curve, an economic theory that shows that there is an optimal tax rate for both high income and low income? And as the tax rate changes, tax revenue also changes, the funny thing that fools like you dont understand is as the tax rate increases for higher income, tax revenues begin to fall. In other words those with enough money will not engage in economic activity that will create more wealth. And that is the economic activity that leads to jobs, and wealth for others.
I have said many times, those corporations you hate so much, DO NOT PAY THE INCOME TAXES THAT THE "GOVERNMENT" COLLECTS. THE CUSTOMER PAY THOSE TAXES AS PART OF THE PRICE FOR THE GOODS THEY BUY. The customers pay, it is part of the price, and if our the progressives were not so invested in bashing corporate america, we could get a tax policy that made american companies more competitive and save the consumer money that they could use to buy more goods, generating more wealth for others and thereby replacing the taxes confiscated from corporations.
To get this nation back on track will take some bold thinking, not a new liability on the taxpayer like cap and trade, or health insurance, but a complete change in welfare, one that puts people to work to collect their check, SS one that lets people keep their money, and not use it to falsely make the debt appear smaller. Using our natural resources, let companies exploit the oil gas and coal they find. The new jobs just for open offshore drilling (yes we would have to protect sea lanes, but come on OSD, leaks less oil into the oceans, than occurs naturally) Each rig employs 50 to 100, the steel needed to build these rigs would open new plants.
There is a solution to this nations problem, and it is not progressive marxism that is being shoved down out throats by the Dems in Congress, in education, in the news media, and in the fools that are allowed to write in other blogs.
this from warresisters.org……..Total Outlays (Federal Funds): $2,650 billion
MILITARY: 54% and $1,449 billion
NON-MILITARY: 46% and $1,210 billion
http://www.warresisters.org/pages/piechart.htm
"War resisters" sure sounds like an objective source when it comes to looking at the defense budget, walt.
my thoughts too
privatization…..that's the ticket
this from libertarian website antiwar.com
http://original.antiwar.com/scahill/2009/12/18/stunning-statistics-about-the-war-every-american-should-know/
Start by cutting government spending as in the excessive military spending. No one says a peep about that but complain about the stimulus package which can lead to jobs.
That does not even factor in the cost of lives lost or ruined by war. I say there should be a war tax – a tax that every single working person must pay – even if just $5 a month for those with low income and gets higher depending on income. You support the troops do it with your wallet.
Take away the Bush tax cuts – or even better target the tax cuts – not every rich person going to give anyone a job so not every rich person should get those tax cuts.
In Germany there is a group who actually believe in helping society and giving back
http://www.timesonline.co.uk/tol/money/tax/article6949251.ece
"21 wealthy individuals signed up to the campaign, which aimed to convince the grand coalition Government to reinstate meaningful levels of property tax (this was more or less abolished under Helmut Kohl, it now stands at 0.9 per cent, compared with 5.4 per cent in the UK and 3.4 per cent in France). It was led by Dieter Lehmkuhl, a retired doctor and psychotherapist who came into his own personal fortune relatively late in life, after the death of his mother when he was in his thirties and had already established a career.
Since May the publicity his campaign has generated in Germany, in the press and on the German equivalents of Newsnight and Question Time, has encouraged a further 25 German millionaires to join him. To the dismay of many other members of Germany’s elite, all 46 members of the group are now seriously intending to convince the Government not only to reinstate meaningful levels of property tax but to penalise the rich retrospectively."
Can you imagine wealthy people here giving back their Bush tax cuts to help others – nah
I see wealthy folks giving back all the time, Andrea. A rich Republican recently built a new pediatrics wing at the hospital near me, in fact. Republicans do such things at a higher rate than Dems, according to all the scientific evidence. What I can't imagine is you volunteering to throw some extra cash into the pot for health care.
The Laffer curve has bee shown to be ineffective economic theory by actual results. In 1982 Reagan raised taxes and revenue increased both short and long term. Second example tax increase by Clinton in 1993. Tax revenue rose long term until 2001 when Bush the younger reduced taxes and reduced revenue thereby significantly increasing the problems we are facing today.
Reducing tax on the wealthy does not increase revenue and increasing taxes on the poor does not increase revenue. What does increase revenue is moderate increases in taxation at the higher end of the wealth scale.
@ Andrea: Congrats! When are you moving? Sprechen Sie Deutsche?
@Walter: Since you obviously believe that everything you read on liberal, unsourced internet sites is true, be sure to watch Santa's progress on Christmas Eve:
http://www.noradsanta.org/en/index.html?utm_campaign=en_US&utm_medium=mapshpp&utm_source=en_US-mapshpp-na-us-gns-norad
It must be true, it's on the internet!
Merry Christmas!
No Larry D quite the opposite – Middle class AND POOR GIVE more back more than the rich
Might seem as if they do – but if you look at percent of their earnings they on the whole are rather CHEAP compared to the rest of us.
http://www.digitaljournal.com/article/273664
The poor donate more than the rich when it comes to giving at their capacity. A homeless person is more likely to feed another than the richest man in the harshest of economic times.
As for conservatives giving they do give alot to their church – but that is like paying dues .
http://www.huffingtonpost.com/2009/05/26/americas-poor-give-most-t_n_207531.html
You are always good for a laugh, Andrea.
not relevent reverend……yeah, you're right………..them damn libertarians and their libertarian ideas about being against war. How could anyone be so foolish by not supporting the war machine.
hey, Peace on Earth to you too
Jeff,
Great point about corporations passing their tax burden along to their customers in the form of higher prices. I don't know why the government tax and spend advocates can't figure this simple concept out. In the end, all corporate taxes are regressive, hitting poor people who can least afford high prices for goods and services the hardest. Plus, those taxes make it more difficult for our companies to compete and result in fewer American jobs. High corporate taxes are the perfect storm of stupid policy.