Alaska draws upon the federal checkbook for a big part of its economy. But that doesn’t require Alaskans to be slavish advocates of ever-greater federal spending. Rather, we want responsible spending and responsible choices.
That’s not happening in Washington, D.C. The “compromises” struck late last year and the budget proposal released by President Obama last week ignore what needs to be done. Federal income and spending must be reset on a course that brings them into balance — in short order.
A few high-profile commissions recently described how this could be done, but their recommendations have been ignored. Instead, self-righteous advocates use their megaphones to drown out talk about the compromises needed to stop the red ink. And leaders in the government are fooling around with harmful cuts in federal agencies that are nothing more than symbolic.
Consider a few specifics. One of the largest federal programs is Social Security. Originally created as a self-sustaining program, it now pays out more in benefits than it receives in payroll taxes. The cash deficit will be about $45 billion this year, according to the Congressional Budget Office, and that number grows rapidly in coming years.
Besides being unsustainable in the long term, this unquestionably adds to the pressures creating federal red ink. Yet advocates of the status quo try to deny this in an effort to forestall any meaningful reform. The left-leaning Economic Policy Institute, as quoted by New York Times columnist Bob Herbert late last month, claimed Social Security “is emphatically not the cause of the federal government’s long-term deficits, since it is prohibited from borrowing and must pay all benefits out of dedicated tax revenues and savings in its trust funds.”
That claim is technically correct but totally misleading. Robert Bixby, of the deficit-fighting Concord Coalition, described what is actually happening. Social Security technically has $2.7 trillion in its “trust fund,” which should last through 2037, he noted. But that trust fund isn’t real money in the bank. It’s a promise.
“The trust funds are simply a claim on future general revenues,” Bixby explained. “They represent a promise from one arm of the government (Treasury) to pay another arm of the government (Social Security). Coming up with the cash to make good on that claim will mean squeezing out other spending, raising taxes or borrowing from whoever is willing to lend us the money.”
In other words, when Social Security runs a “cash deficit” this year, the money to cover it won’t come out of some fat trust fund where it has been stashed away in past decades. It will come out of the taxes Americans pay this year. Since those taxes aren’t even close to covering what the federal government is spending, the Social Security imbalance will force the federal government to borrow more.
Social Security isn’t the biggest entitlement, though. Medicare holds that distinction. And any discussion of limiting its costs is a political minefield.
Yet even Medicare is about to be overshadowed by something else, something that chews up our nation’s wealth and leaves us with nothing to show for it: Interest payments on the national debt. The Concord Coalition said in its most recent bulletin that “interest payments on the federal debt would begin to exceed Medicare costs as early as 2018.”
That’s why the federal government must get its debt under control. The interest payments on it will capture precious dollars needed for real work. The Government Accountability Office in November described how fast this will happen if nothing changes. Under an “optimistic” scenario, one that envisions a substantial net tax increase, by 2040 the federal government will have no money to pay for anything but Social Security, Medicare, Medicaid and interest on the debt. Under a more realistic scenario, which still includes a hefty tax increase, the government can afford nothing but Social Security and debt payments in 2040.
The U.S. government was not created 224 years ago merely to run a pension system. It has a several other important functions. But without fundamental change, those functions will be driven into the ground.