Government Spending

A Fiscal Picture That Calls for Exclamation Points

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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.

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  1. *pukes on keyboard*

  2. 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.

    Oh, goodie. Cue the left to argue “this govt healthcare program is going to bankrupt us and the only solution is to bring everyone into an even bigger govt healthcare program”.

  3. Thanks again, LBJ!

  4. Candidly, if the federal government were a private corporation and the same report came out this morning, our stock would be dropping…

    Our stock IS dropping. It’s called the U.S. dollar.

  5. If only voters, elected officials, and others were as vigilant with their oversight of the U.S. fiscal situation as the SEC is with disclosures of publicly-traded companies.

  6. How the hell could the gap go from $20trillion in 2000 to $53trillion in 2007? The only major item that wouldn’t have been factored in, in 2000, was the new $8trillion for the prescription plan? What kind of actuaries are employed by Congress? Can we believe this new debt figure is correct or will it be $100trillion in seven more years, even if no new benefits are legislated?

  7. Cue the left to argue “this govt healthcare program is going to bankrupt us and the only solution is to bring everyone into an even bigger govt healthcare program”.

    Come on, Scott, you know that if we just give the federal government the power they’ll get those runaway health care costs under control.

    I mean it’s worked with everything else the government runs hasn’t it?

  8. Thanks again, LBJ!

    Thanks to you too, FDR!

  9. Guess it’s time to tighten the pursestrings at the ol’ household. Let’s see, 40+% of my income already goes to pay for government at the federal, state, and local level. How is this not enough?

  10. Who hoo! Time to get out of the fucking country!

  11. You buncha treasonous bastages. The economy is strong! I know this because our president says so. To disagree is unamerican.

  12. Nothing an increase in the cigarette tax can’t fix.Plus it will discourage teens from smoking.

  13. Oh, I should thank Alexander Hamilton too for creating the national debt in the first place. Thanks, you monarchist piece of garbage!

  14. Should Canada start worrying about illegal immigrants (i.e. fatbacks as we term them in private circles)?

  15. The fair tax will wipe out all this debt
    Vote Mike Huckabee, the real libertarian candidate, who supports the %30 VAT

  16. I’m surprised David Walker hasn’t been disappeared yet.

  17. Thanks again, LBJ!

    Thanks to you too, FDR!

    Let’s not slight GWB!

  18. This Hamilton bashing continues to be a burr under my saddle.

    The alternative to Hamilton’s plan would of been to repudiate the debt incurred by the revolution and Confederation. This would have made us subprime borrowers for a generation, severely hobbling ecomnomic development and the opportunity to do stuff like the Louisana Purchase. The entire history of the US changes, potentially resulting in freedom being wiped out in the 20th century.

  19. potentially resulting in freedom being wiped out in the 20th century

    The joke practically writes itself.

  20. The fair tax will wipe out all this debt
    Vote Mike Huckabee, the real libertarian candidate, who supports the %30 VAT

    Wow, is that what Boortz is talking about these days?

    I didn’t mind him pre-9-11, but he took a turn for the suck after that. Luckily South Florida radio doesn’t carry such tripe… the even dropped Glenn Beck a few moons ago…

  21. potentially resulting in freedom being wiped out in the 20th century

    The joke practically writes itself.

    By any measure, freedom on both the micro and macro levels was on the rise at the end of the 20th century.

    Freedom surviving to the 22nd century is a story not yet written.

  22. creech

    Without looking, I would guess that the $53T figure is the sum of payments over time smortized at the current rate of interest, I suspect the Present Value figure would be much lower.

    The numbers are still bad though. The National Debt clock was at $9.1T last time I looked. That IS a Present Value figure.

  23. the even dropped Glenn Beck a few moons ago…

    Thats probably the best advertisement for south Florida I’ve ever heard.

  24. In related news, our Democratic Congress is holding $40 billion of Iraq war funding hostage until Bush signs one of their pork-laden bills.

    Remember, these are the same Dems who said “we’d like to bring the troops home, but we can’t just cut off funding!” Well, unless their pork is at stake.

  25. Again, my point isn’t that I want them to fund the occupation of Iraq, it’s that they’re totally willing to do so if they get their pork. Same old story: the Republicans want a bill spending $30 billion, while the Democrats want a bill spending $40 billion. So they compromise and pass a bill spending $80 billion.

  26. Oh, crimethink, crimethink… you jacked that joke from Winston Churchill, and don’t even try to deny it.

  27. creech-

    The only major item that wouldn’t have been factored in, in 2000, was the new $8trillion for the prescription plan?

    That “8 trillion” was just an early estimate… :o)

    Seriously, I would guess that number reflects what we haven’t done over the last seven years with Medicare— It’s like those ‘balloon mortgages’ where you pay ‘principal only’ for five years, then get smacked with all the ‘interest’ at once.

    Except this ‘mortgage’ goes out 75 yrs, we’re not able to make even the ‘principal’ payments starting in 2013, we simply added our new SUVS*(Medicare Drugs) to our debt, and expenses are still climbing 5%+ faster than income every year.

    ‘Compound interest’ is a bitch…

    *(Support Urologists and Vascular Surgeons?)

  28. I heard it somewhere, but I don’t think it was Churchill (unless it had ?, milliards, Conservatives, and Labours)

  29. The original joke was about the 1909 Naval Scare, and the Estimates of that year. The Admiralty had requested six battleships for that year, but the ‘economists’ – led by Lloyd George as Chancellor and Churchill as President of the Board of Trade – thought the government could only afford four due to the expense of new social programs. Ultimately, it was decided to fund four immediately, and four later if necessary… which it was.

    I direct you to Massie’s Dreadnought, page 618; “Churchill himself later ruefully described what had happened: ‘In the end a curious and characteristic compromise was reached. The Admiralty had demanded six ships; the economists offered four; and we finally compromised on eight.'” (That quote, in turn, comes from Churchill’s own The World Crisis, vol I.)

  30. Should Canada start worrying about illegal immigrants

    Well, yes, depending on how you define immigrants.

  31. I blame the Republicans.

  32. If the growth in projected entitlement spending isn’t inflation-adjusted, then it could escalate with a rise in interest rates over the two time periods, since a few percentage points in annual interest rates (which rise to reflect the inflation rate caused by the Fed printing money to cover deficit spending) compounded over decades can make a huge difference in price.

    That, and Congress spending money like a drunken sailor with a credit card with a multi-trillion dollar limit that will be paid for by counterfeiting and mugging other people.

    Did I mention I don’t much care for the federal government?

  33. BakedPenguin — could you sumbitches who post blind links to the Urkobold website warn us normal people upfront, because the frickin’ website traps you and won’t let you go back to Reason without exiting the internet and firing back up again? Wastes a minute of my time doing that.

  34. By any measure, freedom on both the micro and macro levels was on the rise at the end of the 20th century.

    And then at the beginning of the 21st, things “took a turn”…

  35. …and won’t let you go back to Reason without exiting the internet and firing back up again…

    Perhaps the “Recent Pages” list could be of some use here. In other words, use the list to jump over all of the Urkobold stuff. No need to close the browser.

  36. Give the Dems one thing: when they try to buy votes with taxpayer money, they usually get a few. Bush can spend trillions and and still be about as popular as syphilis.

  37. The full retirement age is based on maintaining a 50% death rate, so the government does not have to pay any paid for benefits but to half of the investors. The government gets 15% of all wages (up to $102,000) in America and is so incompetent as an investment manager, if we could we would have fired them, they do not invest our money and grow the funds. The problem with Social Security is totally caused by government. No, matter your political party affiliation, and setting aside your thoughts on issues. We all need to remember what it is to be an American Citizen. We need to make sure our elected representatives obey their Oath of Office and keep their Oath of Allegiance. See http://tinyurl.com/2znnvl Know whom you are voting for. http://www.fms.treas.gov/fr/index.html

  38. Dr Coles, if the gov’t actually invested SS funds it would likely make the feds the largest stockholders in the country. I can imagine few things more dangerous.

  39. prolefeed – I wasn’t aware that was an issue. I just tried it in Firefox and Netscape, and was able to use the “back” button to return here without a problem. I don’t have Internet Explorer on my machine, so if that’s what you’re using, I can’t test that.

    Also, whatever browser you use, look at the View Menu and see if Status Bar is checked. If not, check it, and you should be able to see the location of any link (at the bottom of your browser) when you mouse over it, and waste no more minutes.

  40. “Churchill himself later ruefully described what had happened: ‘In the end a curious and characteristic compromise was reached. The Admiralty had demanded six ships; the economists offered four; and we finally compromised on eight.'”

    Take a walk down memory lane to the compromise between the House and Senate deposit insurance limits, in the ‘eighties or thereabouts.

  41. Dr Coles

    If the government were investing our SS money they wouldn’t be able to spend. and what would be the point of that?

    After all, why do you think they maintain the fiction of the “Social Security Trust fund”?

    Besides which, what Eryk Boston said.

  42. How many of you are in 401K plans? I am thinking that the current tax-deferred status of those dollars may be in jeopardy right about the time they are ready for withdrawal. (Retroactively, mind you)…perhaps IRA would limit the tax risk to principal?

  43. Folks, this can all be resolved if we just tax people more. Especially the rich and corporations – they’re practically a bottomless pit.

  44. gaijin,

    I wonder how many people really believe the “tax free” growth of their Roth IRAs will really end up being tax tree?

    I figure on the tax deferred plans the guv will keep their hands off. They know they are getting their tax money eventually.

  45. All you need to know:
    “Our government has made a whole lot of promises in the long-term that it cannot possibly keep,” Comptroller General David M. Walker, the head of the Government Accountability Office, said Monday.

  46. It’s obvious that the old ways are not working. The current model is not sustainable. Our politicians, at best, are rearranging the deck chairs on the titanic. We need a “new set of solutions” a “new set of ideas and actions” that will create a better America for all.

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