The trillion-dollar question

The candidates during this week's debate. Does either one have a serious plan to address the nation's deficits and debt? ERIC GAY / Associated Press
The candidates during this week's debate. Does either one have a serious plan to address the nation's deficits and debt? ERIC GAY / Associated Press
Posted: October 18, 2012

By David Koitz

The United States has run trillion-dollar budget deficits for the past four years, and its debt is now equal to three-quarters of what it will produce this year. President Obama's principal response is to call for greater "equality" - that is, raising the top income-tax rate from 35 percent to 39.6 percent. But taxing the rich isn't the elixir for the largest deficits since World War II: There aren't enough rich people, and the numbers don't add up.

Mitt Romney, meanwhile, advocates cutting all income-tax rates to spur economic growth, while covering the revenue loss by limiting still-unspecified deductions and loopholes. He says he would spend more on defense, too. And like the president, he would set a target for spending reductions to be achieved mostly by cutting discretionary domestic spending and tinkering with some of the less popular entitlements.

On both sides, many of the details are left undefined. And both candidates say they are considering changes to Medicare, but not for 10 years.

The candidates often insist that they offer a clear choice between different philosophies, but would their proposals make a difference when it comes to deficits and debt? Neither has addressed the huge fiscal problems on the horizon: Medicare, Medicaid, and Social Security.

Rather than accusing each other of cutting Medicare, Obama and Romney should be educating the public about why the program has to be constrained. The oldest baby boomers became eligible for Medicare last year, and some started receiving Social Security benefits four years ago. Over the next 13 years, the senior citizen population will increase by 50 percent, further swelling these programs.

Twenty years ago, Medicare, Medicaid, and Social Security comprised 41 percent of the budget (interest aside). Twenty years from now, at current rates, they will comprise 61 percent. Even if the Bush tax cuts expire, the tax take from the economy would have to double what it is today to match spending.

While America has the world's strongest economy, it now accounts for a quarter of the debt issued by governments worldwide. It may seem inconceivable now, but there may come a time when the world doesn't want to lend us more money. Today, interest on U.S. debt consumes 10 cents of every federal tax dollar unless more is borrowed to cover it. The Congressional Budget Office projects that in 20 years, it could consume 40 cents of each dollar. No responsible investment professional would lend to a company with that kind of ledger.

Over the next decade, the United States could add nearly $13 trillion to the debt if it doesn't change course. Without Social Security and Medicare deficits, spending on Medicaid, and interest on the debt, we would be enjoying surpluses.

It's not some ill-defined government waste that plagues us. It's our bulging entitlements. It isn't about shrinking government; it's about containing it. We need to trim the growth of Medicare, Medicaid, and Social Security.

The options for doing so are pretty obvious. We're living longer than our parents did, and we shouldn't be eligible for these programs until a later age. And we will only tame health-care costs when we pay for more of our care directly, not through the government, insurers, or employers.

As this election approaches, we don't need ideology; we need pragmatism. Countless experts and commissions have sounded the alarm for nearly two decades, but with the campaign winding down, how the candidates would tackle this problem is vague at best. They owe it to the nation to be honest about the problem and to propose a clear, comprehensive solution.


David Koitz is a visiting fellow at Stanford's Hoover Institution and the author of the forthcoming "Entitlement Spending: Our Coming Fiscal Tsunami" (Hoover Institution Press, 2012).

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