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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.
The problem with this, and it is a very big problem is that there is little risk to a healthy chashflow scam and investments are by definition risky. The other problem is that the money would not be 100% under government control and congress could not use the money when other sources of revenues dry up as it uses Social Security today.
You're right. But at this point, I'd rather take the investment risk than the certainty of a cashflow system that will fail. The second reason you describe obviates the first... one of the reasons, besides basic mathemetics, is that the so-called Social Security Fund is really just more government debt.
From what I've heard, in the best of time Social Security ended up rendering about 2% interest in terms of average payouts. There is no 40-year period in the last 100 years where investments in the stock market wouldn't have beat that by a huge margin. The key is the length of time: 40 years. Certain the period from 1928 to 193x was awful, as were other times like 1987, 1990-1991, and the beginning of this decade, but over 40 years, these drops were more than offset by the subsequent economic growth.
If the government could unleash the economy with true tax reform (a la Dennis Hastert, Jerry Brown and many others), combined with a program of retirement investment becoming personal rather than just another Congressional feedbag and Ponzi scheme, I think the problem can be solved. However, these are drastic measures, and it seems like it would take someone as crazy as Ross Perot to be bold enough to actually propose them (rather than just hint around). That's one thing I really respected about him, by the way. I was really hoping President Bush would drop a huge tax reform bomb at the RNC convention, and I think it could have clinched his run for re-election. Like a friend of mine used to say: The flat tax (or whatever scheme you are talking about, like VAT, etc) won't work perfectly either, but it makes a whole lot of sense to start from there and fix that rather than add to the 20,000 pages of tax code that alreadyt exist. An additional plus is that there's a whole industry of people who could get jobs that actually produce something rather than just waste productivity dealing with an incomprehensible tax code.
True tax reform and Social Security are just like the weather, everyone talks about them but no one does anything.
You are in a maze of twisty little passages, all alike.
But most Americans don't have a clue what is going on. I saw a billboard last night that said, "Remember, it's your money" -- and it was an ad for Bush-Cheney! The administration that insisted tax cuts were the prescription for times of plenty, for times of recession, for times of peace and times of war, has now seen the unwanted side-effects: a languid recovery, and a trillion dollars added to the debt. A budget surplus, the first in modern times, converted instantly to massive deficit.
Sometimes I wonder if there isn't a way to start talking about the debt as the balance on our nation's credit card. Maybe if we put overspending into terms that the average consumer could understand, and stuck to those terms, people could finally start to get it. This country produces $11 trillion of wealth every year, and, through our government, we are $7.4 trillion in debt. Maybe if we start comparing the government to a family that's making $110,000 a year, but is $74,000 in debt, we could have a real national debate about government spending. The question is not whether "it's your money," but whether, being $74,000 in debt, it's a good idea for you to get a brand-new credit card and go rack up another $4,000 on it every year -- as Bush and the Republican Congress are now doing.
Especially when massive, unavoidable costs are just over the horizon.
Grover Norquist has declared his goal of drowning the government in a bathtub, and his way of doing it is to spend it into oblivion. The Republican Party has sold out the country by signing on with this brand of destruction. What it's going to yield is not prosperity and limited government, but anarchy and -- very possibly, in the decades to come -- the end of America as an economically powerful beacon of freedom. When our children are serfs for the wealthy who have bought up the country, when the old are baking to death because we can't afford to buy them air conditioners, when the poor and the sick die alone because we can't provide them with basic health care, when the unregulated food makes us sick and the unregulated drugs are a crapshoot, when half the country will never be able to retire and will be forced to work at McDonald's and Wal-Mart until their bodies fail, I hope people remember the name of Grover Norquist, and who it was that put his theories into practice. One percent of this country will always enjoy all the best things in life, but everyone else will be wondering what it was like before our government was drowned, and if those folks back in the '90s and '00s knew how good they had it.
Social Security is not a personal retirement account.
It is a social safety net; It is a social pact, a new socal covenant; It is the promise of the Government that when you get old, you will not be homeless and die of hunger. It is not about rich people having more disposable income when they retire. The Rich are not supposed to get the lions share. If you think of Social Security as a safety net then, who gets paid, becomes clear. The people who paid the least get the most, and the people who paid the most get the least. This is the heart of the "New Deal" the new pact between the Government and the People.
This is a program that, at its heart, is truly Christian (not to say that it doesn't fall well into any other religion, Christian is just what I was raised). This is loving your neighbor. This is helping the poor.
Corporations go bankrupt, and their investors lose everything they have invested when they do.
All these privatization of Social Security plans are scams devised by the filthy rich to have the stock markets flooded with capital so that THEIR investments will be massively increased in value. The investor class has their investment spike while the average worker is forced to pay a premium.
None of these privatization schemes offers any suggestions about what to do when the next Enron happens and people lose their retirement savings. Are we supposed to shake our heads at old people and tell them to starve in the streets because the senior management of the corporation looted all the value out of the company?
There has to be a safety net for the elderly and disabled in our society. Ensuring they have minimum standard of living is far more important than the investor class getting a huge increase in their account values from a massive sump of capital into the stock markets.
Just to be a bit dismal, I think you miss one of the key problems with both Medicare and Socical Security: Longevity.
When both Social Security and Medicare were conceived (heck most pension plans for that matter) life expectancy wasn't much pas age 65 or so. If you managed to live long enough, you could benefit from your company's penson plan, or the government backup (Social Security) and get government medical benefits so that getting sick once didn't wipe you out financially (Medicare).
However, medical technology, good dentistry, and the "health craze" movement have all added years on to people's lives. Now people live longer, and expect to partake in the government largesse. People who live longer need expensive medications and surgeries to help them live longer. The longer they live, the more Social Security and Medicare money they soak up.
Just look at President Clinton or VP Dick Cheney. Both men would be dead (or unable to do much more than lay in bed) without nifty cardiac surgeries. Those surgeries cost thousands and thousands of dollars. (I am not saying that the price of these procedures is too much, just that they cost lots of money.) Now that their lives have been prolonged, they can expect to continue taking medicines to keep their cholesterol down, blood pressure down, and so on for the rest of their lives. This costs more money. When they finally make it to the age where cancer starts to take them down, they can expect to use more money on cancer treatment.
The longer you live, the more it costs to keep you alive. Multiply that by all the people eligible for Medicare, and you can see how the policy of providing medical treatment to people is a positive feedback loop that rapidly chews up all your spare money.
How do we solve this problem? Heck if I know. I don't want to turn us into some parody of Logan's Run where people are forcibly retired from living at age n. But I do want those who run for political office and who claim "leadership" as one of their defining adjectives, to discuss this seriously.
Social Security is not a personal retirement account.
But that's what it's been sold as, at least these days. Otherwise it's just another tax and more income redistribution. If they call it that, then I think people will look at it a lot differently, especially since there will be no difference between the hard-working person who couldn't save enough to retire despite good planning and best efforts and the stupid person who didn't plan for the future and squandered his money, from the system's point of view. And we all know proving a negative ("I can't be successful.") is infinitely harder than proving a positive ("I have been successful."), where success here means being able to take care of yourself.
I'm not disagreeing with your categorization of what it should be. The problem with all these "Christian charity" type Government programs is a.) they are coerced, and b.) that far too many people will do everything they can to unfairly take advantage of them.
I'm not saying there shouldn't be a safety net, there absolutely should be. But I am extremely leary when the government implements one, because every time it has done it in the past, it has failed. Not in the fact that it didn't provide the safety net, although that happens, but the fact that such programs attract abuse and result in dependency, whether real or perceived.
It is truly Christian to administer "tough love" (although obviously not to the point of people starving to death). The problem is that there are people who cannot help themselves, temporarily or permanently, and people who will not help themselves, because of lack of education, motivation or need (i.e., the system lets them float along just fine). I think the former, while very real and in genuine need of our help as citizens and as a society, are greatly outnumbered by the latter. The problem is that "The Government provides a safety net." is perceived by many as "The Government owes me a living."
The pact of the New Deal is that if you do your part, the government will cover your butt if something really bad happens, and that's good. The problem is with the "you do part" part of it. Just like with Communism, the "give what you have and take what you need" won't work when people fail to acknowledge the proper definitions of "have" and "need".
You are in a maze of twisty little passages, all alike.
So we raise the min wage to $50/hr. What will this do. I currently make$35/hr so I need a raise to $75/hr because I do not have a basic job. The people that have more responsibilities than me get a raise to $100/hr. So now that means that everything that we produce must cost more to cover our wages as I work in a small business and there is no big corporate money. Our product that was selling for $150 must now sell for $225. Are you as a consumer willing to pay that increase or is my company going out of business?
The basis of authority for Social Security is not morality. It's a recognition that we are not willing to let old people simply starve and die in the streets. If we believe that a person has the right to emergency health care, regardless of ability to pay, then it makes sense to pursue policy that decreases the amount of emergency care required by those who cannot pay. Leaving old folks to fend for themselves creates an environment
Your right about the safety net functions, but this is a recognition of a more advanced and complex society and the rights that must be recognized in order to achieve growth in this modern world. I believe that is a more accurate description of the heart of the New Deal. No law in the US, no matter how "good" or "moral", can use morality as it's basis for authority and remain valid. Laws who's only basis of authority is moral violate the principle of equal protection under the law.
The GOP economic policy of so-called ownership is about taking ownership of risk, not providing opportunity. If you look at all of their proposals and replace the word opportunity with risk they start to match with reality instead of looking like some ideologue's fantasy. Check out this column by Harold Meyerson, which lays out this concept very clearly.
Arrogance is Confidence which lacks integrity. -- me
Walter Williams said it best:
That's not racist. Poverty may be the result of racism, and social security may harm the poor, but Social Security is not a racist system. It is not at all the case that only white people are allowed to receive Social Security. It is a fine but important distinction because the true problem is poverty and racism's role in preventing people from getting out of poverty. Calling Social Security racist amounts to race-baiting and is completely unhelpful.