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Folks, America must quit living paycheck to paycheck

By ROBYN E. BLUMNER
Published September 24, 2006

David Walker is a modern-day Paul Revere but rather than redcoats he is warning of red ink. The nation's comptroller general and head of the Government Accountability Office is ringing alarm bells all over the country trying to raise awareness of the coming fiscal crisis.

He sees clearly what few of us do: mounting liabilities and debts so debilitating that he equates America's future to that of ancient Rome's.

In other words, it doesn't end well.

Just to put some numbers on the problem, right now, each full-time American worker carries a $375,000 burden that represents the amount owed toward future financial commitments made by the federal government. These are promises already made, primarily for Social Security and Medicare. In total, it comes to more than $46-trillion in outstanding net commitments and liabilities - the kind of number that makes one choke on one's bran flakes.

When Walker says our fiscal policy is "unsustainable," and "we cannot simply grow our way out of this problem, tough choices will be required," he is speaking with the restraint of an accountant. What he really means is, this nation is in-the-toilet doomed if we don't start electing grownup leaders who are not afraid of the word "taxes" and the notion of cutting spending and entitlements.

But our current president, whose life has been one big free lunch, has little stomach for demanding sacrifice. His war in Iraq is now costing $8-billion per month - all of it essentially borrowed - and he's still pushing for more tax cuts for America's rich. When we were attacked by a group of Islamic terrorists, Bush suggested we all go shopping, an injunction made even as our national savings rate was plunging to less than zero. Party on.

Meanwhile, the money Bush is spending is increasingly coming from overseas. In 2001, only 30 percent of our national debt was financed by foreign banks and governments. Today, more than 43 percent is. Can you say "foreclosure" in Chinese?

Thanks to the irresponsible crew running things in Washington, we are running a deficit even as our economy chugs along at a healthy rate of growth. Under Bush, federal revenues have fallen while spending has increased at an annualized rate of nearly 5 percent - a clip not seen since Lyndon Johnson.

Yet, current demands on the federal budget are bubkes compared with the IOUs coming due for the baby boomers. According to the GAO, as the baby boom retires, virtually the entirety of federal revenues will be sucked up in the vortex.

Let's say, over the next decade, discretionary spending grows at the rate of inflation and the Bush tax cuts expire as scheduled. By 2040, spending on Social Security, Medicare and Medicaid alone would eat up more than 75 percent of federal revenue. Add the interest on the national debt and there would be no money left for any other spending. None.

Now let's just tweak the model slightly and say that discretionary spending grows at the rate of the economy and Bush's tax cuts are extended the way he wants them to be. By 2040, federal revenues would do little more than cover the interest on our national debt. We couldn't afford Social Security or any retiree health care obligations, never mind funding the rest of government.

Anyone scared yet?

Walker's presentation, titled "Saving our future requires tough choices today," includes a picture of his three grandchildren. He says we have an obligation to this generation to start getting serious about averting the financial crisis to come. Otherwise, the baby boomers will be the first generation to fail to hand their successors a country in better fiscal shape than they found it.

As a first step, we have to introduce constraint in Washington with the resurrection of the PAYGO or pay-as-you-go rules, requiring budget neutrality for any tax cuts or spending increases. This was the key tool for fiscal discipline during the Clinton years. If you wanted to spend more for one program, you had to cut another. If you wanted to cut taxes for some people you had to raise them for others, or cut spending to make up the difference. But Bush and the Republican Congress dumped the rules when they got in the way of their tax cuts.

Once PAYGO is re-established, every federal program should be opened for re-evaluation to see if it still serves our national interest. Entitlements should not be sacrosanct, but neither should increasing revenue through more taxes. The sooner we do this, the less overall pain there will be.

Walker believes that a large majority of Americans would be willing to accept a tough but fair and nonpolitical plan for digging out if they understood the depths of the problem. I agree. Now all we need are responsible leaders with the backbone to lead.

[Last modified September 24, 2006, 01:26:18]