A Fiscal Picture That Calls for Exclamation Points

Yesterday the GAO issued a report on the federal government's fiscal situation, and Comptroller General David Walker summarized its findings in a speech at the National Press Club. Some highlights:

This morning, the Treasury Department released the 2007 Financial Report of the United States Government. Candidly, if the federal government were a private corporation and the same report came out this morning, our stock would be dropping and there would be talk about whether the company's management and directors needed a major shake-up….

From a short-term perspective, it's true that our federal deficits have declined for three straight years and declining deficits are better than rising deficits. However, we are still running large deficits on an operating basis [i.e., excluding the Social Security surplus]….

Our current deficit and debt levels are not unduly troubling as a percentage of our national economy. However, these deficit levels and related debt burdens are set to escalate dramatically in the near future due to the retirement of the "baby boomers" and rising health care costs. The fact is, absent meaningful reforms, America faces escalating deficit levels and debt burdens that could swamp our ship of state!….

The federal government's total liabilities and unfunded commitments for future benefits payments promised under the current Social Security and Medicare programs are now estimated at $53 trillion, in current dollar terms, up from about $20 trillion in 2000. This translates into a defacto mortgage of about $455,000 for every American household and there's no house to back this mortgage! In other words, our government has made a whole lot of promises that, in the long run, it cannot possibly keep without huge tax increases.

The Medicare program alone represents about $34 trillion of our current $53 trillion fiscal gap. If there is one thing in particular that could bankrupt America, it's runaway health care costs. And don't forget, the first "baby boomers" will begin to draw their early retirement benefits under Social Security in a couple of weeks! And, just three years later, they will be eligible for Medicare. When "baby boomers" begin to retire in big numbers, it will bring a tsunami of spending that, unlike most tsunamis, will never recede.

The prescription drug benefit alone represents about $8 trillion of Medicare's $34 trillion gap. Incredibly, this number was not disclosed or discussed until after the Congress had voted on the bill and the President had signed it into law. Generations of Americans will be paying the price—with compound interest—for this new entitlement benefit. In many ways, the 2003 Medicare prescription drug episode arguably represents government "truth" and "transparency" at its worst. Unfortunately, based on adding the prescription drug benefit and other spending and tax actions, the federal government seems to be ignoring the first rule of holes in connection with its fiscal affairs. Namely, when you're in a hole, stop digging!

Ordinarily, I avoid exclamation points, and I tend to take them out of articles I edit (unless they're part of quotations), because they create an overheated, if not ludicrous, tone. But I think Walker can be forgiven.

I wrote about the Medicare drug benefit (without exclamation points!) in 2003 and last year.