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US Candidates Ignore Looming Debt Crisis
code_rage writes "Carolyn Lockhead of The San Francisco Chronicle has written an article about one of the most important, but overlooked, political issues we are facing. Baby-boomers will soon begin retiring, which will result in a huge fiscal imbalance (deficits and debts). The article says that the present value of the anticipated debt is estimated to be between $40 trillion and $72 trillion, depending on the source. To put that in perspective, the current national debt is $7.3 trillion.""
Former Treasury Secretary Paul O'Neill commissioned a study (free PDF) that was written by Jagadeesh Gokhale and Kent Smetters. To give a sense of how serious the fiscal imbalance is, consider some of the painful measures that the study said would be necessary to balance the books:
- More than double the payroll tax, from 15.3% to 32% of wages
- Raise income taxes by two thirds
- Cut Social Security and Medicare benefits by 45%
- Eliminate all "discretionary" spending (including such constitutionally mandated government functions as the military and the judiciary)
Peter G. Peterson has written a book about the issue: "Running On Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do about It." He recently gave an interview at the Council on Foreign Relations. He prefers to express the issue in terms of cash flow, because Social Security and Medicare are "pay as you go" systems (there is essentially no trust fund). The cash flow impacts will be an estimated $783 billion in 2020, increasing to trillions later.
Peterson offers some concrete proposals in the interview, and offers some political cover to the candidates in saying "I have never thought that a political campaign is an optimum environment for serious discussion or practical proposals.
Former Treasury Secretary Paul O'Neill commissioned a study (free PDF) that was written by Jagadeesh Gokhale and Kent Smetters. To give a sense of how serious the fiscal imbalance is, consider some of the painful measures that the study said would be necessary to balance the books:
- More than double the payroll tax, from 15.3% to 32% of wages
- Raise income taxes by two thirds
- Cut Social Security and Medicare benefits by 45%
- Eliminate all "discretionary" spending (including such constitutionally mandated government functions as the military and the judiciary)
Peter G. Peterson has written a book about the issue: "Running On Empty: How the Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do about It." He recently gave an interview at the Council on Foreign Relations. He prefers to express the issue in terms of cash flow, because Social Security and Medicare are "pay as you go" systems (there is essentially no trust fund). The cash flow impacts will be an estimated $783 billion in 2020, increasing to trillions later.
Peterson offers some concrete proposals in the interview, and offers some political cover to the candidates in saying "I have never thought that a political campaign is an optimum environment for serious discussion or practical proposals.
Think about the debt in the same way you think about a mortgage.
Say you buy $1,000,000 house with a loan. Your salary is $50,000. You are in trouble.
Say you buy a $1,000,000 house with a loan. Your salary is $200,000. This is perfectly acceptable.
The point is, just looking at the debt amount is meaningless. You also have to see what the income is to see if you are in debt trouble.
Let's put this in the perspective of the national debt. The debt seems pretty large. However you need to look at the income. What is income? It's national GDP (gross domestic product). As our GDP goes up, so does our ability to sustain a larger debt.
This is the one thing the deficit demagogues never mention. Our GDP has gone up dramatically over the last 20 years. So when looking at a national debt, first you need to adjust for inflation. Then you need to take the proportion of the debt compared to the gdp. Do this with our current national debt, you will realize that our debt is very manageable and much less than it was during Reagan and FDR.
Here's a good graph of Debt vs GDP:
http://zfacts.com/p/318.html
So yeah, the debt is too high right now. No one disputes that. But its not the end of the world. The economy isnt going to collapse, even if our debt was double what it is now.