Time to face reality of nation's crushing liabilities

October 28, 2007|By Joseph Gribbin

We Americans are a generous people. However, we have made a practice of overextending that generosity through ever-increasing federal borrowing, while passing on unfathomable financial burdens to our children and to generations yet to be born.

The official debt of the U.S. government is now reaching the $9 trillion mark. However, David M. Walker, comptroller general of the United States, says that the way in which the federal government measures its liabilities grossly understates the nation's obligations and has created a dilemma that, in his words, could bankrupt the nation.

This practice was enabled by a 1960 ruling by the Supreme Court, which held that promises made by Social Security to each of us represent not a legal obligation but an administrative one.

The government in its annual ledger, therefore, counts the income stream of payroll taxes but ignores the future promises made to each of us. For example, the latest reports from the trustees for Social Security and Medicare estimate that their unfunded liabilities are $40.9 trillion. Mr. Walker places the total funding gap of the federal government at $50 trillion, or 95 percent of the net worth of every American. For this reason, he says, the greatest threat to our nation is not someone hiding in a cave in Afghanistan but rather our fiscal irresponsibility.

While the war in Iraq cost the nation about $120 billion last year, the trustees' reports put the cost - that is, the increase in unfunded liabilities - of one year's delay in reforming Social Security at $300 billion to $700 billion. And funding problems with Medicare are five times that of Social Security.

Another way to view the cost of political paralysis is to consider Social Security and Medicare Part A reform through tax increases. The reports conclude that to restore solvency, taxes would have to be increased immediately by 36 percent to average the pain across generations. Alternatively, if we choose to have future generations bear tax rates that match costs and revenues on a year-by-year basis, rates would increase by 86 percent by the end of the projected time frame of 75 years.

Sens. Kent Conrad, a North Dakota Democrat, and Judd Gregg, a New Hampshire Republican, ranking members of the Senate Budget Committee, have introduced legislation that would establish a bipartisan task force to make recommendations on these funding issues after the presidential election. The proposal is formulated along the lines of the successful military Base Realignment and Closure Commission and would require an up-or-down vote by Congress.

Unfortunately, political realities have thwarted progress.

Because of the political paralysis in Washington, Mr. Walker and representatives from the Concord Coalition, the Heritage Foundation and the Brookings Institution, who represent the ideological spectrum, have decided to take their consensus package of reality checks directly to the people. Coordinated by the nonpartisan Concord Coalition, the "Fiscal Wake Up Tour" has held 30 town hall meetings around the nation and is scheduled to bring its dose of fiscal reality to a public forum tomorrow at the University of Maryland, Baltimore County.

As currently configured, these landmark entitlement programs that have lifted us up as a people and that continue to provide economic security for older adults represent the most significant threat to our security. Given the statutorily mandated tax rates and the current levels of promised benefits, they are placing an unsustainable burden on our children and their descendents. Within two decades, when the number of older adults will almost double to more than 70 million, our economy, our culture and our sense of intergenerational equity will be radically transformed.

I concur fully with Mr. Walker's proposals to address our nation's fiscal challenge:

Improve financial reporting by acknowledging the fiscal intergenerational effects of our laws, especially our entitlement programs.

Enhance the level of public awareness of the issues.

Strengthen budgetary and legislative processes to better control spending.

Fundamentally re-examine and transform our entitlement programs as rapidly as possible to reflect the new demographics and fiscal realities of the 21st century.

We are indeed shopping with our children's credit cards, and it is time to yield the cards back to their rightful owners.

Joseph Gribbin is an affiliate professor with the Erickson School of Management, Aging and Policy at the University of Maryland, Baltimore County. Information on tomorrow's UMBC forum is available at www.umbc.edu/concord.

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