Running a deficit is nothing new for Washington. But the
problem's getting worse.
Last year, the "official" federal budget deficit was $319 billion,
bringing D.C.'s total public debt to $4.6 trillion.
Those numbers boggle the mind. But they pale in comparison with
what the federal government really owes.
Calculate all the outstanding federal obligations and liabilities -
the benefits promised for Social Security, Medicare, federal
pensions and retiree health care - and you'll find they total $46
trillion. That's four times larger than the entire U.S.
economy.
It works out to $375,000 in unfunded federal liabilities for every
full-time worker in America. It's as though each of us has taken
out an extra mortgage, only without the fancy house!
You'd think that members of Congress would be taking serious steps
to rein in spending and work out a plan to pay off these huge
debts. They aren't.
Federal spending reached $22,000 per household last year. That
level of spending represents fully one-fifth of the nation's
economy (gross domestic product), but it's just the tip of the
future spending iceberg.
The real concern is the future costs of promises made to baby
boomers. When the boomers retire, spending on Social Security,
Medicare and Medicaid will explode, doubling the total federal
budget. Unless we change these programs, federal spending will
gobble up nearly 50 percent of the economy by 2050.
The federal budget works on a pay-as-you-go-system based on when
tax revenues come in and money that is paid out. When Congress
estimates the cost of legislation, it looks only at expected
short-term costs, using arbitrary five- and 10-year budget windows.
There is no analysis of the long-term obligations or
commitments.
This practice makes it easy to expand entitlements, since the bulk
of the costs don't arise until well in the future. Conversely, it
gives lawmakers no incentive to fix entitlements because solutions
appear costly when not analyzed in terms of existing long-term
commitments.
It's like a young couple with a no-limit credit card. Initially
they can easily pay off their purchases over a few months. However,
since their minimum payment is artificially low, they rationalize
spending on items that are incompatible with their monthly income
and budget. After months of making minimum payments and not getting
ahead, they realize they have racked up considerable debt and can
only pay it off by large sacrifices.
When Congress debated the new Medicare drug benefit, many
considered the official $400 billion price tag (calculated for a
10-year budget window) to be reasonable. But they had no idea the
benefit carried staggering long-term costs of $8 trillion. By
contrast, during the Social Security reform debate, up-front
transition costs made reform appear unaffordable because long-term
savings that would occur later were never considered.
It's no way to do business. Indeed, Congress refuses to let
business budget this way. Instead, it requires the private sector
to disclose future obligations in their financial statements -
including pensions and retiree health care - and to make annual
payments to satisfy them.
At the mandate of Congress, the Financial Accounting Standards
Board has set standards requiring private sector companies to
record and report their obligations each year as they are incurred,
even if they won't fall due until well into the future. If Congress
played by the same rules, its budgets would have to disclose
unfunded obligations and set aside a considerable amount of money
each year to make good on its promises when payment falls
due.
Just to finance Social Security and Medicare obligations for the
next 75 years, Congress would have to pony up another $480 billion
annually - nearly 20 percent of last year's total spending - and
that's without interest.
Thus, the real federal deficit is hundreds of billions of dollars
greater than the official figure. Congress and the nation can't
afford to turn a blind eye to this calamity-in-the-making. Congress
needs to adopt accounting practices similar to those imposed on the
private sector. And Congress needs lawmakers with the courage to
come up with a plan for government to live within its means.
Alison
Acosta Fraser is director of the Roe Institute
for Economic Policy Studies at The Heritage Foundation
(heritage.org).
First appeared in KansasCity.com