George Washington once observed that "We should avoid ungenerously throwing upon posterity the burdens that we ourselves ought to bear." The fiscal facts contained in the Congressional Budget Office's long-term budget outlook, released last month, would leave the normally unflappable Washington appalled.
Just to set the stage: we have an accumulated federal budget debt approaching $15 trillion. That's staggering, but it is small compared to the additional $47 trillion in unfunded liabilities for benefit programs, notably social security and Medicare.
The respected and nonpartisan CBO presents two scenarios. The first, called "extended baseline", assumes that current law taxing and spending will continue. This assumes that Federal deficits (this year: $1.47 trillion, 9.5 percent of Gross Domestic Product) will drop down to around 2 percent of GDP by 2014, then rise steadily to over 4 percent in 2035.
For this to be remotely realistic, the Bush tax rate cuts of 2001 and 2003 will be allowed to expire at the end of this year, not just for "the rich", but for all taxpayers. The Alternative Minimum Tax (AMT) comes roaring back to plague upper middle-income taxpayers. Compensation of physicians providing Medicare services will be slashed 20 percent. The new ObamaCare Independent Payment Advisory Board will get tough on wasting Medicare dollars on sick people who are, in the government's view, well over the hill.
You say the American people will never let their Congress allow those bad things to happen? The CBO agrees, and thus presents an "alternative scenario" that is more politically realistic.
CBO's "alternative scenario" assumes that most of the Bush tax rate cuts will continue, taxpayer resistance will block ever more "soak the rich" schemes, the Medicare doctors and hospitals will get paid quite a bit more, and the outcry over Medicare "death panels" will block those expected savings.
By 2035, under this scenario, federal spending would account for almost a third of the U.S. economy, and federal debt held by the public will have risen from the present 60% of GDP to an astounding 185 percent.
But wait. It gets worse. When the government pays its bills by borrowing, the funds it borrows "crowd out" productive private investment. CBO projected that federal debt would increase to 188% of GDP by 2027. The CBO's model gave up at 2027 because the curve was heading straight up.
And don't forget the tax dollars required to pay the interest on federal debt. At the present $15 trillion debt level and 3% average yield, we will pay on the order of $450 billion next year to service the debt. That annual burden will triple by 2027.
David Walker CPA served for ten years as the U.S. Comptroller General. There is probably no one person in the country who has a better grip on what these fiscal facts mean for Americans, especially the younger generations.
In his new book Comeback America, Walker writes "if we don't wake up, the next crisis could be much worse. What if we went into it with even greater budget and current accounts deficits? These measures [interest rate cuts, bailouts, stimulus spending] worked this time because the world still trusts in the strength of the dollar and the safety of U.S. bonds. But what if trust in the United States erodes? In that dismal event, our economy would face skyrocketing interest rates at best, and at worst a flight from the dollar to the euro or the yen. If that happens, farewell to America as the world's economic powerhouse."
David Walker will speak at an Ethan Allen Institute program at the Sheraton Burlington Thursday, Aug. 19, from 9-noon. His topic is the subtitle to his book: "Turning the Country Around and Restoring Fiscal Responsibility".
Vermonters concerned about the fiscal storm facing their children and grandchildren in the years ahead may want to attend.
John McClaughry is vice president of the Ethan Allen Institute (www.ethanallen.org).