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WHALEN: Forget the bailout. Whither our debt?
As if the federal government does not have enough to pay for, the recently negotiated bailout deal has further added to the government’s tab.
Understandably, the estimated price tag of $700 billion to buy the mortgage-based assets of struggling banks is leaving politicians and taxpayers alike shuddering. After all, the thought of plunking down taxpayer dollars to carry out what the private market should be doing in the first place (not including the $25 billion that will been doled out to the auto industry) just makes people wonder if government should be allowed to handle money at all.
What is peculiar is not so much the bailout itself, but the concern about it. Yes, $700 billion or thereabouts is a steep price to pay, amounting to about $2,300 for every man, woman and child in the United States, and there are no guarantees the government will recover what it paid for in these assets.
But you haven’t seen anything yet. Unfunded liabilities of the Social Security and Medicare programs will dwarf this current economic bailout.
This past spring, the Social Security Trustees released their annual report on the state of the Social Security and Medicare programs. The report on the state of entitlement programs is rather grim - the combined unfunded liabilities of both programs are a $101 trillion!
This means that to pay promised elderly entitlement benefits to our old folks into the future, we must have $101 trillion in the bank today gathering interest. This is the amount above and beyond what dedicated payroll taxes and general revenues will cover. Putting it in perspective, the cost of this unfunded liability amounts to more than $300,000 for every man, woman and child in America. It’s the difference between paying $1 for a newspaper or $100. Which one would cause you more angst?
Yet, even at 100 times the cost, the $101 trillion deficit doesn’t trigger near the media headlines and political fuss that the current $700 billion bailout is garnering.
Many shrug their shoulders at a debt that seems so far into the future. To his credit, U.S. Treasury Secretary Henry Paulson warned shortly after the report’s release that without entitlement reforms, “rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America’s future prosperity.”
However, Pete Stark, California Democrat, of the House Ways and Means Health Subcommittee, remarked: “Reports of Medicare’s death have been greatly exaggerated.”
Not so. Currently Social Security and Medicare Part A are covered by a 15.3 percent payroll tax, half paid by the employee and the other half paid by the employer. But according to the Trustees Report, today’s payroll taxes percent would have to increase by one-third to meet unfunded obligations of Social Security and Medicare Part A. If payroll taxes were increased to include the shortfalls from Part B and the prescription drug program, one-third of workers wages would be committed to pay for promised benefits by 2054!
Moreover, in the absence of any tax increase or entitlement reform, the federal government would have to stop spending money on 1 in 4 services it currently provides by 2020, such as education or infrastructure. The cutbacks would increase to 1 in 2 by 2030!
This is not to take the current bailout situation lightly. There are serious economic and political costs, no matter what the decision, and taxpayers have the right to wonder what the outcome will be of government using taxpayer dollars for another bailout. But compared to the unfunded liabilities that loom before us over the coming decades,$700 billion is just a drop in the bucket.
Mike Whalen is chief executive officer of Heart of America Restaurants and Inns, based in Davenport, Iowa, and is policy chairman of the National Center for Policy Analysis.
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