blogenlust
9.12.2004

The Impending Debt Disaster


Check out this disturbing article in today's SF Chronicle. It is about the fact that neither candidate has discussed the impending fiscal nightmare of huge deficits and the first stages of Baby Boomer retirements.
Astronomical federal debt, coming due as the Baby Boom generation collects Medicare, Medicaid and Social Security, is enormous enough to swamp the promises both candidates are making to voters, whether for tax cuts, health care, 40,000 more troops or anything else. "Chilling" is the word U.S. Comptroller General David Walker uses to describe the budget outlook. "The long-term budget projections are just horrifying," added Leonard Burman, co-director of tax policy for the Urban Institute. "I've got four children and it really disturbs me. I just think it's irresponsible what we're doing to them." What these numbers portend are crippling tax increases on workers, slashed benefits for retirees, gutted budgets for homeland security, highways, research and everything else, and an economic decline or a financial collapse that devastates the middle class, as happened recently in debt-strapped Argentina. Eventually, analysts insist, someone -- today's children or tomorrow's elderly or both -- will pay this debt. [...] "To give you idea how big the problem is," said Laurence Kotlikoff, economics chairman at Boston University, who has written extensively on the subject, to close a $51 trillion fiscal gap, "you'd have to have an immediate and permanent 78 percent hike in the federal income tax." These obligations are not imaginary. And unlike the 1980s and 1990s, economic growth cannot bail out the government because the Baby Boom retirement is at hand. Those born in 1946 will reach age 62 in 2008, allowing them to take early retirement and receive Social Security benefits. "It's a number that's so large that people find it implausible, and so they don't think about it," said Alan Auerbach, a UC Berkeley economist who studies the issue and consults for the Kerry campaign. "But it's based simply on the projections we have for Social Security and Medicare. People aren't making these numbers up." [...] But early signs of a problem are now appearing, analysts said, starting with the mounting deficits under Bush caused not just by the recession and terrorist attacks, but also by enormous spending increases and tax cuts. The brief window of surpluses that appeared during the late 1990s economic boom offered a chance to address long-range liabilities, but those surpluses now are gone. "Maybe the public doesn't want to hear it," Kotlikoff said. "Maybe politicians think ... the American public can't understand the truth or hear the truth or bear the truth. I think this is garbage. I think that people care about their kids and grandchildren and need to know the dangers facing them --and us."
Even though the article states neither candidate has adequately addressed this problem, I think it goes without saying that permanent tax cuts are not going to help this situation. Moreover, I think even the suggestion of permanent tax cuts is irresponsible, especially when you know what it means in the long run, as I am sure someone in this Administration does. Kerry's policies may not directly address the problem, but at least he understands the basic concept that we can't cut everyone's taxes if we are going to increase our spending for a war and try to reduce the deficit. I don't necessarily blame either candidate for not talking about this coming nightmare, after all, it is an election year and campaigning for a 78% hike in the federal income tax isn't going to win any votes. Nevertheless, it is important to realize the path we are on, and that path, financially speaking, is not good.