Sobering Budget News: "Spending Our Way to Financial Ruin"

Politicians trumpeted last week's Senate budget bill as one that slashes spending, helping Congress free itself from its addiction to debt. The nation's comptroller, David Walker, has a different view, asserting that the fiscal reality "is worse than advertised... The facts are not partisan and they're not ideological." He asserted that the nation has a "leadership deficit" when it comes to the budget. "The nation's unfunded liabilities and commitments ... have risen from $20 trillion in 2000 to approximately $50 trillion today -- equivalent to the entire net worth of all Americans."

Other experts -- in a nonpartisan chorus -- echo Walker's warning and paint a different story from the White House line. They remind us that Republicans (who are the dominant party in both houses and the executive branch) plan to make permanent $70 billion in tax cuts later this session (reducing income through 2010) -- further adding to our red ink. In fiscal 2003 and 2004, Congress spent about $1.42 for every $1 of its own income tax revenue. Our total debt is currently around $50 trillion -- about $166,000 for every man, woman and child. For context, the median price of a house in the US was about $187,500 earlier this year.

Even Alan Greenspan, outgoing Fed chief, is starting to raise the alarm: "Unless the situation is reversed, at some point, these budget trends will cause serious economic disruptions." What kind of disruptions?

The Medicaid drug benefit plan, if left unchanged, would consume all federal revenues in 75 years, according to the Knight-Ridder story. Oh, yeah, and K-R, which has broken lots of bad news lately, is now under pressure from its largest stockholders (investment firms) to break itself into bits and sell off assets (32 newspapers).

From the Houston Chronicle:

Congress has outspent its own income in 45 of the last 50 years, thereby running up deficits by over $5 trillion. But $4 trillion of those deficits were in just the past 20 years. And then President Bush's budget submission this past February projected $3 trillion more of deficits in just the next 6 years. That is how much Congress itself actually spends in excess of its own income tax revenue. In government lingo, those are the real "on-budget" numbers.

That clearly isn't something Congress wants everyone to know about. So it disguises what it is doing. How? In three simple steps: It takes out all the (really "off-budget") excess money coming into the Social Security retirement fund, that is supposed to be saved for future retirees' checks; considers it as "income" for Congress and uses it all to pay Congress' own bills; and then subtracts that "income" from Congress' own losses and reports only the total to the public as "the" budget.

But people might actually get alarmed if they knew that Congress itself really spent about $1.42 for every $1 of its own income tax revenue in both fiscal 2003 and 2004, setting all-time percentage and dollar deficit records. So President Bush has assured us that "deficit reduction" will cut "the" deficit in half by 2009.

That's why Bert McLachlan, author of "Saving Social Security (from Congress)," accuses Congress of "embezzling" Social Security funds. After all, due to actions taken by President Reagan (at the recommendation of a commission headed by Greenspan), Social Security has been running big surpluses: $155 billion in 2004 ... $230 billion in 2009 (projected).

Congress -- and the President -- lump this surplus into a "general revenue" pool when they calculate deficit reduction goals.

This picture is 180-degrees from that painted by Administration officials like John Snow, treasury secretary. In an op-ed in today's Atlanta Journal-Constitution, Snow asserts: "Since taking office, President Bush has worked to restrain spending and get our nation's fiscal house in order."

Let me courter-point with McLachlan's data:

Four-fifths ($4 trillion or 80%) of our current debt has been accrued in the past 20 years. In his February 2005 budget, President Bush projected adding $3 trillion to this debt load in just six years, thus almost doubling the debt in one-third the time. This is called an exponential increase. The converse is why you can pay off your mortgage in significantly fewer months by adding a small (marginal amount) interest payment to each mortgage payment.

Think Knight-Ridder is too liberal? Then let's counter-point with a piece from the Washington Times: (emphasis added)

According to several respected authorities, including the Concord Coalition (co-chaired by former Sens. Warren Rudman and Robert Kerrey), the Congressional Budget Office, U.S. Treasury Secretary John Snow, and the Social Security Administration, the estimated present value of the unfunded liability of Social Security and Medicare ranges between $61 trillion and $75 trillion...

Simply put, between $61 trillion and $75 trillion is the money needed to be set aside right now, at current interest rates, to meet Social Security and Medicare's future obligations. To put an astronomical sum like $61 trillion or $75 trillion in a bit of perspective: The value of our entire national output of goods and services (GDP) in 2004 was only $12 trillion...

Here's that future according to House Ways and Means Committee testimony from Dr. John Goodman, NCPA president (May 2005): "In 2020, combined Social Security and Medicare deficits will equal almost 29 percent of federal income taxes. At that point the federal government will have to stop doing almost a third of what it does today. By 2030, about the midpoint of the Baby Boomer retirement years, federal guarantees to Social Security and Medicare will require 1 in every 2 income tax dollars. By 2050, they will require 3 in every 4." And by 2070, Social Security and Medicare will consume all federal revenues.

This dire picture exists in large part because we spent the money as it came in -- instead of setting it aside, as the Greenspan committee recommended to Reagan. It also exists because Congress spends a tremendous amount of money "off-budget" (think most of the war in Iraq) and all of that money is deficit spending (since the on-budget funds are deficit spending).

The conservative Heritage Foundation uses another bleak analogy -- that of the alcoholic:

Brian Riedl, the lead budget analyst at the conservative Heritage Foundation, says ..."There is not much courage out there. They will go whichever way the wind is blowing on a lot of these issues. And if they're not hearing it from the grassroots, and they're not hearing any pressure, they're going to focus on the political calendar, they're not going to focus on the long term."

"Like an alcoholic, the first thing you have to do it admit you have a problem ... The flip side of it is, Americans are vehemently opposed to every possible solution," he says.

It's a gloomy enough story that most people (politicians included) find it easier to play ostrich or to listen to the spin from folks like Snow. That could explain why so few news outlets picked up the Knight-Ridder story, according to a Google news search. [ Duluth News Tribune, Kentucky.com, Myrtle Beach Online, Olympian, Seattle Times.]

Blogs covering the deficit and budget: Brad LeLong, Economist's View, Free Enterprise Fund, Infinite Wisdom, Macroblog, Stefan Karlsson, Texas Viking,

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