- The Washington Times - Tuesday, November 2, 2004

In January, the newly inaugurated president will inherit an economy growing much faster than the recession-bound economy the Clinton-Gore administration bequeathed to President Bush. However, despite the fact that the current economic expansion is well-balanced — both investment and consumption are advancing at impressive, sustainable rates — important policy adjustments will nonetheless need to be undertaken in the short term in order to improve the economy’s long-term outlook.

Structural imbalances that need to be addressed include the growing budget deficit, an exploding current-account deficit and a collapsing personal savings rate — all of which, by the way, are interrelated. Meanwhile, the looming crisis in Social Security is rapidly arriving, as the first wave of the 76 million-member baby-boomer generation will begin retiring before the president’s four-year term ends. Three years later, 65-year-old baby boomers will begin qualifying for Medicare benefits.

Demonstrating the necessity for reform, the cumulative net unfunded liabilities for Medicare and Social Security over the next 75 years total $21 trillion, or nearly three times today’s gross federal debt. This amount represents the difference between committed benefits and projected payroll taxes and premiums; and it includes the assumption that younger Americans will pay $6 trillion more in taxes than they will receive in benefits. Moreover, if the arbitrary 75-year time horizon is replaced by the so-called infinite time horizon, then the net unfunded liabilities could approach $75 trillion.

The Congressional Budget Office (CBO) projects that the nominal budget deficit will decline from $413 billion in just-ended fiscal 2004 to $348 billion in fiscal 2005. But the standardized budget deficit, which removes the business cycle’s impact and makes several miscellaneous adjustments, is actually projected to increase this year. And this disturbing increase will likely be further enhanced because fiscal 2005 wartime expenditures in Iraq and Afghanistan will probably exceed 2004’s. Over the longer term, it is worth noting, CBO’s September projection of budget deficits totaling $2.3 trillion over the next 10 years did not take into account the extension of middle-class tax cuts after their scheduled expiration in 2010, Mr. Bush’s proposal to make virtually all of 2001 and 2003 tax cuts permanent, Mr. Kerry’s proposal to increase health-care spending over the next decade by as much as $1.5 trillion, or relief from the Alternative Minimum Tax, which could cost more than $600 billion over 10 years.

As noted in a recent editorial, neither candidate offered an adequate, long-term plan to address the worsening problems related to America’s increasing dependence upon Middle East oil. U.S. net petroleum imports in 2004 have averaged 11.8 million barrels per day today (which is twice the level of oil imports in 1973 when Arab members of OPEC embargoed exports to the United States). The Department of Energy projects that by 2025 U.S. oil imports will range between 20 million and 23 million barrels per day, a far cry from the “energy independence” promised by both candidates.

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