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PDF versionRising debt could cripple economy, analysts say
Feb. 02, 2010
News Analysis
President Obama’s $3.8 trillion budget, sent to Congress this week, projects a $1.3 trillion deficit. As daunting as the figure might sound, it pales as a fiscal challenge to a larger structural deficit, which left ignored could eventually pull the rug right out from under our nation’s economy.
This is the growing consensus of economists and budget analysts on the left and right who say our nation is at risk and our nation’s policymakers, caught in gridlock, lack the political will to deal with the crisis.
As a result, these budget watchdogs say we are saddling our children and grandchildren with potentially paralyzing debt.
In broad strokes, those who look at the problem – which involve liabilites of over $56 trillion - see two paths out of the woods: increasing taxes and decreasing spending. They say both are necessary, though some deficit spending might be required in the short run to revive the economy.
The most costly programs include Social Security, Medicare, Medicaid and military spending. To move toward a balanced budget, Democrats generally prefer raising taxes on corporations and the rich; Republicans prefer cutting entitlement programs. Neither path is politically popular and so a gridlock, now decades-long, has set in.
This gridlock was apparent last month when the Senate failed to gain the 60 required votes to end a potential filibuster, and so a bill that would have set up a binding congressional commission that could have written legislation to break out of the bind failed 53 yes votes to 46 no votes.
Obama’s 2011 budget calls for a bipartisan fiscal commission, but it will not have binding authority. His budget also calls for a three-year partial freeze on discretionary domestic spending, but this covers only an estimated 14 percent of the federal budget.
The Concord Coalition, a bipartisan budget watchdog group calling for greater fiscal responsibility, praised Obama’s call for the commission and the freeze. The coalition, based in Arlington, Va., was founded in 1992 by the late former Sen. Paul Tsongas (D-Mass.), former Sen. Warren Rudman (R-N.H.), and Peter G. Peterson, chairman of the board of the Peter G. Peterson Foundation, also dedicated to drawing attention to the debt problem.
The National Debt as a percentage of Gross Domestic Product
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“The president’s budget is a step in the right direction on a long and difficult path,” said Robert L. Bixby, Concord executive director. “While it certainly leaves much to be done, it recognizes the need to begin reining in our unsustainable deficits without clamping down too fast on the spending increases and tax cuts that were designed to help the economy recover from a deep recession. This is a complex and perilous task, but it is essential.”
The structural debt issue has been highlighted in recent weeks with the publication of a book, "Comeback America: Turning the Country Around and Restoring Fiscal Responsibility," by David M. Walker, former comptroller general of the United States and former head of the Government Accountability Office. Walker has been making the news circuit rounds in recent weeks appearing on programs ranging from “The Daily Show” to CNBC’s “Squawk Box” to “Morning Edition” on National Public Radio.
His basic message is that the U.S. debt, which he places at over $12 trillion, plus obligations like pensions, retiree health care, and leases, and other comittments, bring the number to over $56 trillion, and all this represents deferred taxes on our nation’s children and grandchildren.
“In 12 years our interest payments will become the largest single expenditure on the federal budget,” he says. We are in a quagmire, he goes on, explaining, “Our nation has to bring what we earn into line with what we spend at a time when our spending literally is out of control.
“One option – cutting investments in America’s future in order to finance our large and growing mandatory spending programs – is another way of cheating the next generation. Unfortunately, today we are both cutting our investments in the future and handing our descendants a mountain of debt.”
Looking at the 2011 budget deficit, Walker says it is fueled largely by the recession, two undeclared wars, the bursting of the housing bubble and related fallout, and selected tax, spending and entitlement actions from Bush administration.
He says the real challenge is not today's deficits and debt levels, but the long-term deficit. He points to the cost of promised federal social programs that are way out of line with projected revenues needed to support them. He says currently Medicare is $38 trillion underfunded and Social Security is $7.7 trillion underfunded.
Walker says that by 2030, if significant reforms to current government programs and policies aren't made, federal taxes could double from current levels just to pay interest on the growing federal debt. Right now, he says, on average, Americans pay about 21 percent of their income in federal taxes and another 10 percent to state and local governments. By 2030, to pay rising bills, he says that amount could jump to at least 45 percent -- higher even than the average 42 percent that most Europeans pay. By 2040, it would be at least 53 percent.
The Washington-based Center on Budget and Policy Priorities last month issued a report calling for a goal set over the next decade of stabilizing the deficit at 3 percent of our nation’s gross domestic product. It is currently projected at 8.3 percent.
The center’s report pointed to two main factors behind the deficit problem: rising health costs and an aging population. Together, it states, these factors will drive up spending for the “big three” domestic programs: Medicare, Medicaid and Social Security.
The report explains that rising health costs exacerbate the long-term budget problem in two ways. They increase federal spending by raising per-beneficiary costs in Medicare and Medicaid, and because of the tax preferences for employer-sponsored health coverage and certain other health care spending, rising health costs erode the tax base by increasing the share of income that is exempt from taxation.
Both proposed House and Senate health care bills take steps to begin to constrain health cost growth while improving the quality of care system-wide, the report notes.
Some deficit hawks claim the center underestimates the challenge. A budget reform commission funded by the Pew Charitable Trust and the Peterson Foundation recently called for policymakers to stabilize the debt-to-gross domestic product ratio with even more drastic social program cuts and tax hikes.
Military spending is another expense that budget analysts say is leading to a weakened economy. Last week, Steve Winn, communications director for the Concord Coalition, underscored the need for the Pentagon to also trim its sails. Noting that about one-fifth of the federal budget goes to the Pentagon, he said, “It is clear that there are many opportunities to achieve significant savings without jeopardizing national security. Petty turf wars, bureaucratic bloat, poor planning, lax bookkeeping, no-bid contracts, illogical personnel policies and simple extravagance all inflate the defense budget in ways that knowledgeable taxpayers understandably resent.
“In addition, shortsighted members of Congress often champion unnecessary defense spending -- or at least turn a blind eye to it -- in deference to the special interests that stand to profit.
“All of this adds to the nation’s fiscal imbalances and massive borrowing. That’s why the Concord Coalition supports careful review of the defense budget to identify reasonable reforms.”
Some of the financial solutions Walker proposes include:
- Setting limits on what the federal government can spend on health care each year. He says America is the only major industrial nation that does not have a limit.
- Establishing treatment standards based on sound clinical evidence of what works and what doesn’t, including end-of-life care.
- Charging more for those who can afford to pay more as part of the Medicare program.
- Getting rid of the Alternative Minimum Tax (AMT) so that it applies only to the country’s richest households, as it was originally intended to do.
- Imposing a progressive consumption tax. He says more than a hundred countries have adopted the value-added tax (VAT), which is easy to administer, and deducted automatically in every transaction. A consumption tax, he says, encourages savings over conspicuous consumption.
- Cutting back or eliminating production of weapons systems that represent individual service wants, but not our true national threat- and risk-based needs.
Some of the political solutions Walker proposes include:
- Changing the congressional redistricting process to achieve more competitive races and a more representative House of Representatives.
- Reforming campaign finance rules to require that a super-majority of campaign contributions come from individuals who are eligible to vote for the candidate.
- Imposing 12- to 18-year term limits on Senate and House members in order to prevent entrenchment and facilitate a transformational reform.
Fox is NCR editor.
Until Congress reins in
Until Congress reins in spending, followed closely by state and local goverments, we are not only morgaging our future but will very soon see
painful realities in terms of higher interest rates. The FED can not hold rates down forever and if it tries to do so by printing money, our dollar will eventually fall in value. Obama will try to raise taxes but this is only a short term and very painful approach that will hurt investment and lead to more job loss.
The VAT would only work if it was specifically applied to pay down debt and not used for more spending, an unlikly scenario with a Democratic Congress.
A Vat tax is unpalatable because it "Taxes" products at various stages of developement. This really hits the food industry and is the reason why you pay 8$ for a cup of Starbucks coffee in London and $10 for a sidewalk sandwich in Paris. The VAT would be a nightmare here at home and hit the poor like a ton of bricks.
I am intrigued by the
I am intrigued by the continual reference to the Democrats as the party that spends. Please recall that, when the Democrats last held the White House, President Clinton paid down the national debt. The data also show that the national debt increased substantially during the Reagan administration, owing to his tax cut that never did trickle down, and increased again during the Bush II administration owing to wars that were never included in the budget and another tax cut for the rich that not only didn't trickle down but brought us a recession. Then, I look at TARP and the AIG bailout - programs of the Bush administration. Seems to me that if you want fiscal integrity, you should vote Democratic. Unless, of course, you want another tax cut that doesn't trickle down.
I have an idea, how about
I have an idea, how about subsidiarity. This never seems to come up in liberal and progressive circles. Perhaps stop spending our tax money on health insurance and let each individual spend our own money on this insurance, it seems to work for auto insurance. How about stopping all federal unfunded mandates-social, educational in particular and allow each state to take care of these issues. Better yet let's shift most social and educational programs to counties and if need be to the state and eliminate at least an ENTIRE tier or possibly two tiers of bureaucracy, I bet that will save money! Then rid ourselves of those pesky federal taxes, and implement a VAT or flat income tax without loop-holes to operate a smaller leaner federal government. Oh my goodness, what would the leftests in the USCCB bureaucracy do?!? The meaning of their existance would end and so would our subsidy of them as well!! ALL RIGHT MORE MONEY SAVED!! Naw not possible with extreme leftests in the government and in the Church. Oh well, a good dream.
Every time I hear this
Every time I hear this subsidiarity argument, I am reminded of the hearings that Sen. McGovern held on hunger many years ago. The Governor of Mississippi took the stand, swore to tell the truth, then said that there were no hungry people in the State of Mississippi and that the Food Stamp program was unnecessary. There is arrogance, greed and stupidity at the local level, and it's essential that there be another place where these decisions can be reached. I watch our county commission, our city council, our school board. I am so relieved that they have so little power because they make such bad, petty decisions.
The first thing that should
The first thing that should be done if we are all to pay for our own insurance is to drop the payments for insurance for all priests. Let them pay for their own too. How about it "Father"? And housing, lets let you pay for that too and everything else that you need. Oh, your salary looking a bit low now? Well that's how you want everyone else to live. You do it first and then see how you push this idea.
Father, a flat tax would be
Father, a flat tax would be much more preferable than a VAT Tax for the reasons outlined in my post above. Even this idea would only be successful
if Congress at the same time cut, not just freeze, spending across the board,
a highly distasteful prospect for a Democratic controlled House/Senate. None the less fiscal responsibility will be forced on us in the near future. For a glimpse of what to come look at Spain which now has 95% of its GDP going to service its national debt- and this at historically low interest rates. This is just the start Portugal, Greece, Italy and others are under stress as well While we are not there yet, Moody’s just gave a renewed warning ( its third) on US AAA paper. Unless this congress cuts spending, significantly, Look for the downgrade to happen in the third quarter 2010. While most Americans simply believe we are in a recession and that it will pass quickly, the reality of the situation may be more complex. This is now beyond a simple "Stimulus" package to create a few jobs and then continue as if the night will never come. We need immediate massive spending cuts combined with a gradual decrease in taxes and budget deficits. One common illusion among many is that the National Debt is some vague number that is relevant only to Republican Politicians or worried Harvard trained economic theorists who keep harping on the topic. "We are mortgaging the future of our children" is a line that its met with guilt, but little urgency, on the left particularly when faced with healthcare, climate change, or other social justice legislation, usually with expensive price tags attached. This perception is dangerous because the consequences of high National debt levels are much more immediate than our children future. With our current debt levels any increase in interest rates will severely effect our ability to pay and siphon off capital for investment and job creation. If rates go high enough we could easily be in the same boat as the Spanish.
Father James, I don't think
Father James, I don't think saving money would be all that difficult. All we need to do is scrifice our children to hunger, disease and ignorance and even you would be shocked at how lean we could get. States can race eachother to the bottom in terms of providing education, healthcare and a safetynet for the poor. Just call it "states rights" instead of subsidiarity and you'll have no trouble selling it to today's America.
Dennis you stated that
Dennis you stated that “saving money would not be all that difficult. All we need to do is scrifice our children to hunger, disease and ignorance and even you would be shocked at how lean we could get.” The reality is that spending money that one does not have whether for social justice causes ,climate change, of even education, is a recipe for disaster that leads to even greater problems in the short term. For a road map of what things might look like, under spendthrift policies, think hyperinflation where no one any longer perceives the dollar to have any value, the primary employer is the Government, and your economic destiny lies at the whim of foreign creditors. Unless we start as you so derisively term “saving” soon this movie will be playing at your local theater in the near future.
Democracy will never work.
Democracy will never work. It's fatal flaw lies at the point 51% of the voters vote to take money from the other 49%. We are quickly reaching the point where close to 50% of the voters do not pay any Federal Income Tax. When that happens, watch out. Next target of government will be the Church.
Yeah, see what left-wing
Yeah, see what left-wing entitlement programs have wrought. Liberals shouldn't be trusted to govern.
Comparing health insurance
Comparing health insurance premiums to auto insurnace premiums is like comparing apples to oranges. If health insurance cost a family less than a thousand dollars a year, comparisons would be valid. But that is not the case. Where do the states or even counties, get the money to provide the social and educational requirements? These are very complicated issues that can't just be dismissed in such a simplistic manner. It all requires money, and that requires hard choices on everyone's part.
Peace and blessings
Politics need to be put aside
Politics need to be put aside in favor of constructing outcomes based on the common good. If the outcomes are seriously needed and wanted, then the necessary activities and resources need to be put in place.
Where was all the screaming
Where was all the screaming from the right wingers when Dick Cheney, having given away the surplus he inherited to the wealthy and Haliburton, publically announced that "deficits don't matter"?
Yes, deficits do matter. But it is now time to stimulate the economy, get people employed, keep people employed even if they work for military contractors, so that people will be givers of tax revenues rather than recipients of government assistance. And to ensure that deficits don't explode in the future, we need to address health care spending NOW.
How about reducing military
How about reducing military spending !!!!! How about eliminating pork barrell legislation!! How about raising Social Security payments....how about reinstating the taxes on the wealthiest individuals. How about getting serious about reducing our oil consumption....what about reducing the perks of our Senators and Representatives of the House. Or the pensions given to government workers often after 20 years. What difference does it make whether the social and educational programs are paid on the local, county, state or federal level. It is paid out of the pockets of the average taxpayer. In the days before trickle down economics, I recall that the system worked quite well. How about really investing our money and not allowing the type of gambling, speculation, greed and outright dishonesty to govern the investment and banking industry.
I'm almost 70 years old. I can't tell you how often I have heard the argument of not putting a huge debt on the backs of our children. It's an old argument. No one seems to really care, otherwise we would have pressured the Congress a long time ago to put the breaks on the military spending. I recall it was President Eisenhower who warned us over 50 years ago of the Military Industrial Complex. Let's get serious. Whatever money we diligently saved in our 401K, whatever equity we had in our house, whatever money we invested in "good companies" has gone down the tubes. It wasn't just paper money. It was both Democratic and Republican administrations, as well as the Congress who allowed the regulations on the various investment/banking companies to expire. It is not only about companies being too big to fail. It is about allowing these companies to bring our economy and the global economy to the brink of collapse. I'm sure that if we asked those who run these corporations where their personal money was invested, we might discover that they were probably out of the market.
If anyone read the article in John Deare's NCR article about Howard Zinn, who died recently, they may have read one of Zinn's remarks about what happens to governments when their citizens find out how they have been manipulated and duped. The government and the corporations loose their credibility with their citizens and along with it the governments loose their power. I hope that our government and our corporations do something before that happens.
Good to know, from replies,
Good to know, from replies, that readers of NCR are not lockstep liberals. More like moi, centrist you look at this Administration pushing us toward a socialized system. If uninsured Americans were its initial concern then that is the direction it should have moved. Identify those in that group, and offer low cist insurance and subsidize those who cannot afford insurance. That woud not have busted he budget and satisfied correcting the need. No, Obama and cohorts desired to change this enormous health program into another government agency.
Hmm, the same can be applied
Hmm, the same can be applied to the bishops and the sex abuse scandal when you state:
"one of Zinn's remarks about what happens to governments when their citizens find out how they have been manipulated and duped. The government and the corporations loose their credibility with their citizens and along with it the governments loose their power." Just replace the word government with church and replace the word citizens with parishoners.
That last part, about losing power is yet to come but possibly on the horizon. I believe it was John Henry Newman who said a church with only clergy looks stupid.
Reducing our national debt
Reducing our national debt has never been an item Americans embrace. We prefer getting a fresh credit card and keep spending. If the present administration wanted to do all Americans a favor they would stop spending and us the cash to reduce our national obligation. That would mean disappointing some folks. It takes guts to face the music.
House and Senate health care
House and Senate health care bills take steps to begin to constrain health cost growth while improving the quality of care system-wide, Mr. Fox reports.
Health promotion and preventive care programs are operating. Clearly more needs to be done. Our (my family’s) health care system, one of the best in the nation, is showing ‘stress and strain’ from overload.
This point connects with another. Pope Benedict XVI spoke recently of environmental concerns primarily from a moral perspective, -- social injustice, misallocation of resources – among other issues.
He also spoke of an open secularity, of a great program of education aimed at promoting an effective change of thinking and at creating new lifestyles. The Pope touched on elements of a new faith age that reveal his acknowledgement of both cutting edge knowledge and radically changing circumstances requiring bold, innovative approaches. His focus was to safeguard creation, -- address the environmental crisis. I reasonably believe then that the Pope implies that we must open ourselves to twentieth and twenty-first century interdisciplinary scholarship and thinking. As I understand, secularity means ‘the real world out there’ and that includes the academic contribution as a major factor. Therefore, the best thinking of the experts can help change our thinking and lifestyles so that we can alleviate the global crisis.
The online curriculum that I have been suggesting in my writing for many months would give substance, scholarship’s best thinking, and a range of the sciences, natural and social, to be implemented in assisting with necessary thinking and life style changes in the twenty-first century. Many health and social service groups are doing this. But in real-time reality the need outweighs the fulfillment.
An online curriculum could include the Pope’s concerns that concern the people at large. This change transforms us into people embracing epic historic change. Why? We are evolving into a post-Axial Age faith people. What is a post-Axial Age faith? The spiritual and moral dimensions of a traditional faith experience are not deleted, but instead updated to be consistent with advanced human knowledge and circumstances.
A national VAT devoted solely
A national VAT devoted solely to paying down the structural deficit ONLY merits further discussion.
A VAT, combined with Congress cutting all parts of the Federal budget rather than Congress increasing the Federal debt limit when the Federal Government needs operating funds, might do some real good.
But a VAT and cutting the Federal budget cannot be applied progressively or with any favoritism. EVERYTHING should be in the chopping block, defense and social program alike. If individuals feel their favorite program needs more funding, fine, they can pay out of pocket and make a contribution.
Also, no exceptions to the VAT for public, private or non-profit corporations. Or religious institutions, healthcare providers or educationl entities. Everybody pays until the entire $56 trillion is paid off in, say 50 years. Once that's done, it's time to apply that same discipline to putting, say, $50 trillion in the bank. Then China can borrow money from the United States rather than the other way 'round.
Good heavens, why does
Good heavens, why does everyone ignore the largest and least productive cost of all? Multiple unnecessary and even counter-productive wars going on at the same over many years are costing trillions upon trillions. And will result in much higher health costs down the road, too, as mentally and physically injured veterans return needing care. All this is on top of wasteful and Congressional mandated military-industrial spending the coalition discusses.
I suspect that if we curbed these two costs, made sensible reforms to curb healthcare expenses, and eliminated pork-barrel spending and wasteful subsidies we would soon eliminate the deficit altogether.
Republicans ARE responsible
Republicans ARE responsible for the current economic DEPRESSION. Their greed and deregulation policies have almost destroyed the American economy and may very possibly contribute to a world wide economic DEPRESSION. The worst is yet to come. Adding to the problem are the many spineless Democrats and Blue Dog Democrats (Republican Lite) that did NOT stand up for the working and middle class. Unquestionably, however, the larger blame belongs squarely on the Republicans of the past thirty years. This is what happens when Republicans rule. It will only get worse as the Commercial loans are called in and foreclosures on those large buildings, coupled with more home foreclosures, loss of more jobs and hunger on a wide scale become front burner emergencies. Perhaps then, people will wake up and see the travesty that Republican greed and Democratic spinelessness have done to America and the world.
Do you think as a country you
Do you think as a country you will ever gain control over your economic life ? The answewr to this is no . You can thank the republicans for this with a republican President . No one can blame the present president for this large deficit . It is conservatism that has done the trick by standing on the side of the very "Rich" and never mind the working class . These administrations did not undestand the Social teaching of the Church because greed did lead them away from this . It is because of conservatism that you do not have a proper health system and people have pay rates til they see all colors of the rainbow all because conservatism held in front of the American people that such a thing was socialism . That is provincialism . Narrow minded thinking . That is a reason why you cannot compete upon the world market for reason the cost of health care has to added to whatever you produce anothet reason why your products are to expensive . A national health program will do away with this . See the reality in and and in future times of that what is happening in most idustrialized nations around the world . With greetings and Prayer . John Flipsen . Dcn
"That is a reason why you
"That is a reason why you cannot compete upon the world market for reason the cost of health care has to added to whatever you produce anothet reason why your products are to expensive . A national health program will do away with this" ,. If this were true then Canada, the UK, and most of Europe, all with socialized healthcare, would be at massive comparative advantages with the US and that is simply not the case. In fact China with no socialized healthcare should
Be an economic weakling, and in turn Cuba, with 100 % “free” healthcare should be anything but what it currently is – a third world country- with its citizens rationed one chicken per week per family. You also should know that in Canada some provinces devote over 50 % of their tax revenue to healthcare- hardly the savings being touted for such a program here at home.
Joseph, You and people like
Joseph, You and people like you are the problem. By blindly clinging to reality, facts and logical reasoning you are obstructing our progressive march to a more just and quite possibly bankrupt society. Shame on you.
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