Experts: U.S. is spending its way to financial ruin.
National Debt Nov. 1, 2006 $8,015,272,000,177
By Kevin G. Hall
Knight Ridder Newspapers
November 6, 2005
imbalance between what government takes in and what it spends is the federal
budget deficit. It totaled $319 billion in fiscal 2005, which ended Sept.
To bridge that shortfall, the government takes on additional debt, 46 percent of it now held by foreigners, especially the governments of Japan and China.
The gross national debt is now more than $8 trillion. The government owes itself much of that in accounts such as the highway trust fund. When IOUs in those accounts come due, the government just issues itself some more debt.
The net national debt — the amount that must be financed by borrowing in capital markets, which affects interest rates and the economy — is a mind-boggling $4.6 trillion.
"Unless the situation is reversed, at some point, these budget trends will cause serious economic disruptions," Federal Reserve Chairman Alan Greenspan told Congress' Joint Economic Committee on Thursday.
Think of America's financial future this way: A large family goes to a restaurant and stuffs itself on a full-course meal with drinks and dessert. The waitress then hands the bill to the babbling infant in a high chair. Budget deficits make today more enjoyable, but future generations of Americans will have to pay the bills.
Most economists, including Greenspan, believe American taxpayers won't be able to pay for the retirement and health-care promises that the government has made to the baby-boom generation — those born between 1946 and 1964 — which begins retiring in 2008.
"We owe it to those who will retire over the next couple of decades to promise only what the government can deliver," Greenspan said Thursday.
Undisciplined government spending has done the unthinkable: It's united experts from two rival think tanks with great influence in Washington — the left-leaning Brookings Institution and the conservative Heritage Foundation. Both accuse Congress and the White House of a "leadership deficit," punting when it should be tackling issues affecting the nation's financial future.
"It's very obvious that something has to give. It's as simple as that," said Stuart Butler, vice president of economic policy for the Heritage Foundation.
Congress is struggling over modest proposals — such as whether to nick all spending by 2 percent across the board, trim Medicaid, pinch food stamps and farm subsidies — but ignoring big-ticket spending on tax cuts, defense, homeland security, Medicare and Social Security.
Douglas Holtz-Eakin, director of the nonpartisan Congressional Budget Office (CBO), said current congressional efforts to trim spending won't make much difference.
"It doesn't change our outlook substantially at all over the long haul," said Holtz-Eakin, who formerly worked for Bush.
"The most important thing about the number this year is not the number, but doing it."
Congress shows no interest in halting a Medicare drug benefit scheduled to take effect next year. It will cost $700 billion over 10 years, and more after. It's one reason why spending on Medicare, the health-care program for the elderly and disabled, is projected to explode.
Medicare benefits promised to 40 million seniors will cost $2.7 trillion more over the next 10 years than what it costs now, according to Heritage Foundation economists.
Left unchanged, Medicare promises will cost $30 trillion over 75 years. That would consume all federal revenues, leaving nothing for national defense — or anything else.
"It's like falling off a 30-story building. For the first 20, it doesn't seem so bad," Heritage's Butler said.
Congress displays no appetite for curbing the biggest expenses in the federal budget — automatic "entitlement" spending, especially Social Security and Medicare.
In 1985, spending on such entitlements took 45 percent of the federal budget. It now takes 56 percent. A decade from now, it will take 62 percent, according to the CBO.
It gets worse from there, as the first wave of boomers reaches full retirement age in 2011.
"If there's one thing that could bankrupt the country, it's health care," Comptroller General Walker said.
But it's not just health care and retirement, not just war and homeland security. Congress is spending lavishly on everything, said Brian Riedl, Heritage's top budget analyst.
Spending has grown twice as rapidly under Bush than it had under Clinton. Remove defense and homeland security costs and spending still jumped 22 percent.
"Everything is going up well past inflation" rates, Riedl said.
Since 2001, spending on education is up more than 100 percent, international programs 94 percent and housing and commerce up 86 percent.
"We need a spending cap that helps lawmakers say no," Riedl said. He pointed to the 1990 agreement between Congress and the first President Bush called Pay-Go, which capped discretionary spending and required new spending to be offset with cuts elsewhere.
Sen. Kent Conrad, D-N.D., the ranking Democrat on the Senate Budget Committee, recently introduced an amendment to return to Pay-Go. "There is an old-fashioned idea," he said on the Senate floor.
"Pay for it."