BLOG: Entitlements, Promises, and Debt

This article, from one of the public trustees of Social Security, outlines the challenges facing us with Social Security.  You can read the article by Charles Blahous, here.

You can also read the President's budget for FY2013 at the Whitehouse website. (FY2013 budget pdf)  If you look in the summary tables (page 208), you will learn some facts about the federal budget that need serious discussion.

In 2011, the total revenues to the federal government were $2,303 billion.

The outlays in 2011 were $3,603 billion, leaving a deficit of $1,300 billion.

That means that of every dollar spent, roughly 60% came from tax revenue, and 40% went to debt. (Uncle Sam's credit card)

On the spending side in 2011, roughly 60% of the spending went to Social Security, Medicare, Medicaid, and interest on the debt.

The remaining 40% of the budget in 2011 covered everything else - defense, education, health, transportation, intelligence, law enforcement, customs, etc.

Yes, that's right, everything else.  The military - all of it.  National parks.  Big Bird.  Unemployment compensation.  Pell grants.  Center for Disease Control.  NASA.  Coast Guard.  West Point.  Border patrol.  The FBI.  Popular programs and reviled programs.  Wasteful programs and worthwhile programs.

Everything.

What does this mean?  It means that in 2011, if we had mustered the political will to balance the US federal budget, we would have had to shut down ALL of the federal government, with the exception of Social Security, Medicare, Medicaid, and interest payments, and that would have been just barely enough.

When I hear people talk about our deficits, they usually talk about those things they don't like.  They talk about "the wars", and "waste".  They talk about people living on welfare, both corporate and personal.  Everyone seems to have a program he'd like cut.

None of these ideas comes anywhere near close to what is required.  Balancing the budget in 2011 would have required shutting down almost everything.

It is like a household that made $600/month, and had a $600/month mortgage payment, and spent $400/month on everything else - all on a credit card.  Then, the family starts talking about trimming their food bill by buying less expensive meats, and expects to be praised for its frugality.

The federal budget situation in 2012 is slightly better, but not by much.  The trends are not promising.  The baby boomers are retiring, driving the costs of Medicare and Social Security dramatically higher, while the workforce to pay for it is shrinking.  Interest rates, currently at historic lows, mask an enormous debt service obligation. When those interest rates rise to normal levels, our interest costs will explode.

The federal debt is huge, and growing.  Just like a household, there is a limit to how much debt you can rack up before your creditors cut you off.  When creditors cut off a nation, the consequences are serious.  Think Greece.  Think Germany in 1925.  Think Argentina in the 1970s.  This may seem unthinkable, but it's not.

It's time to stop playing games and to speak the truth. None of the plans being discussed is even close to enough.  Even the so-called "draconian" budget proposed by Paul Ryan, and passed by the house this year is still not balanced by 2022.  We may not have that much time.

We have to discuss serious changes and serious sacrifices. We must abandon the fantasy that we can continue to dump our debts on someone else, on "the rich", or on our children and grandchildren.

Of all the "lies" of this campaign season, this is the biggest one: that we can "protect" Social Security and Medicare, as it is, over the long term.  We cannot.  We are spending what we do not have.  The fact that we are doing this through government does not make it sustainable.  It just makes solutions more difficult.

This is not a partisan issue, or even an election issue.  It is a reality issue.  It's a moral issue.  We are living on a credit card, and our absolute debt limit, immune to congressional protests, will be reached.  The financial rot will catch up with us.  The truth may be painful, but it cannot be avoided. The truth must be faced.

The sooner, the better.

(For those of you who want to see how our surpluses in the 1990s became deficits, see this article by the same author, who analyzes the numbers, and compares projections and tax changes.  Read it here. )