The Debt No One Wants to Talk About

The New York Times ^ | February 4, 2004 | DAVID M. WALKER

[Willie Green]

For education and discussion only. Not for commercial use.

WASHINGTON — We might hope to see the finances of the Union as clear and intelligible as a merchant's books," President Thomas Jefferson wrote to his secretary of the Treasury in 1802, "so that every member of Congress, and every man of any mind in the Union, should be able to comprehend them, to investigate abuses, and consequently to control them." Unfortunately, straightforward government financial information seems as elusive in 2004 as it did in Jefferson's day.

The truth is that the United States faces a long-term deficit that will only increase as the baby boomers retire. The resulting fiscal imbalance will test the nation's spending and tax policies. Washington's recent difficulty in maintaining fiscal restraint has not helped matters.

The fiscal 2005 budget President Bush released on Monday includes a deficit of $364 billion. Although the administration and the Congressional Budget Office show declining deficits in the years ahead, and an improving economy will reduce deficits further, the long-term projected gap is now so large that we will not be able simply to grow our way out of the problem. Difficult choices are inevitable.

But the current system of federal financial reporting provides an unrealistic and even misleading picture of the government's overall performance and financial condition. Few agencies adequately show the results they are getting with the taxpayer dollars they spend, and too many significant government commitments and obligations are not fully disclosed.

Particularly troubling are the many big-ticket items that taxpayers will eventually have to reckon with, including Social Security, Medicare, civilian and military retirement and health care benefits, and veterans' medical care. Despite their serious implications for future budgets, tax burdens and spending flexibility, these future obligations get short shrift in the government's financial statements and in budgetary deliberations.

The federal government's gross debt — the accumulation of its annual deficits — was about $7 trillion last September, which works out to about $24,000 for every man, woman and child in this country. But that number excludes items like the gap between the government's Social Security and Medicare commitments and the money put aside to pay for them. If these items are factored in, the burden for every American rises to well over $100,000.

The new Medicare prescription drug benefit will add thousands more to that tab. This benefit is unquestionably popular and will make it easier for some older Americans to afford expensive prescription drugs. But it also comes with a steep price tag that few want to talk about. The truth is that the drug benefit as signed into law is one of the largest commitments ever undertaken by the federal government. Preliminary estimates of its long-term cost in current dollars range up to $8 trillion.

To put that number into perspective: it is about four times the entire federal budget. Long-term simulations from the legislative agency I head, the General Accounting Office, paint a chilling picture. Even before the new drug benefit was enacted, these simulations showed that by 2040 current policy could require a 50 percent reduction in federal spending or a doubling of taxes to balance the budget.

Either would be devastating. And keep in mind, it is likely that efforts will be made to expand the drug benefit in the future.

A key lesson from Enron, Worldcom and other business failures is that our free-market system depends on public confidence in the accuracy of corporate financial information. Recent G.A.O. reports have highlighted the increasing frequency of corporate earnings restatements. Who would knowingly buy stock in, lend to, or do business with a company that conceals its true financial condition?

As Jefferson pointed out, truth and transparency are even more essential in the public sector. Government services — mail delivery, food inspection, Social Security and defense, to name a few — directly affect the well-being of every American. But sound decisions on federal programs and policies are nearly impossible without timely, accurate and useful information.

Fortunately, we are starting to see efforts to address the shortcomings in federal financial reporting. The latest annual report of the federal government focuses more on the nation's long-range fiscal imbalance. The president's Management Agenda, which closely reflects G.A.O.'s list of high-risk government programs, is bringing additional attention to troubled areas and is trying to better assess the results that programs are getting with the resources they are given. The Federal Accounting Standards Advisory Board is also making progress.

The General Accounting Office and other budget experts continue to encourage reforms in the federal budget process to better reflect the government's commitments and to signal emerging problems. Among other things, the G.A.O. has recommended the government issue an annual report on major fiscal exposures — explicit and implicit promises for future government spending.

Much more must be done, however. A top-to-bottom review of government activities to ensure their relevance for the 21st century is long overdue.

From a practical standpoint, our elected representatives are not likely to get too far out in front of the American people when addressing complex and controversial issues. These fiscal risks, however, are a long-term problem whose impact will not be felt for some time. The understanding and support of the American people will be critical in providing a foundation for action.

A national education campaign to help the public understand the nature and magnitude of the long-term financial challenge facing this nation is essential. After all, an informed electorate is indispensable for a sound democracy. Young Americans especially need to become active in this discussion — because they and their children will bear the heaviest burden if today's leaders fail to act.

Public officials will have more incentive to make difficult but necessary choices if the public has the facts and comes to support serious and sustained action to address our fiscal challenges. Without meaningful public debate, however, real and lasting change is unlikely. The sooner we act, the easier it will be to turn things around.

David M. Walker is comptroller general of the United States.

[searchandrecovery]

A national education campaign to help the public understand the nature and magnitude of the long-term financial challenge facing this nation is essential.

Ooooh, sounds like a great idea for a new federal program. Just need a few hundred million to get it off the ground.

Punchline to America's destruction: And, they're all working to pay for it! Like, exporting jobs overseas. Like, treasonous educational system. Like, police state.

[IrishRainy]

there never was a surplus---the govt increased its debt every year including your green years. The surplus was the result of Enron-style bookkeeping.

If there ever WAS a surplus, it was because we, the taxpayers, were giving waaay too much of our money to the government, which was also highly "discouraged" by the founding fathers!

[IrishRainy]

I specifically remember Clintoon saying we had paid down the national debt while he was in office, thanks to the surplus....

Of course, this is the same guy who said "not a single solitary missile is pointed at our children today..."

[IrishRainy]

Excellent post!

But you seem to have a thing for singing birds...:)

[the-ironically-named-proverbs2]

glad to see some people finally waking up

I did a quick google and found this from 1998:

"THE NATIONAL DEBT CONTINUES TO INCREASE DESPITE TODAY'S BUDGET "SURPLUS" CELEBRATION

WASHINGTON--Despite claims the country is wiping away 30 years of red ink, the national debt continues to grow. While politicians of both parties take credit for a budget "surplus," the national debt has grown by over $110 billion ($110,639,535,002.46) so far in fiscal year 1998. With one day remaining in the fiscal year, this year's debt will be greater than last year's, continuing a streak that dates back to 1960.

"The growing national debt is an unwelcome guest at today's surplus party," said Concord Coalition National Policy Director Robert L. Bixby. "But, politicians who energetically boast about surpluses today will have a difficult time explaining to their constituents in a few years why they need to raise the debt limit."

Many people understandably wonder how the national debt can continue to increase when the government claims to be running a surplus. The answer lies in the fact that most politicians are referring to the "unified" budget, which lumps together all revenue and all spending from both federal funds and trust funds--like Social Security.

The projections of "unified" budget surpluses assume continued borrowing in excess of $100 billion annually from the Social Security and other federal trust funds. Social Security's surpluses have been credited to the program's trust fund and the money has been loaned back to the Treasury to help defray the costs of other government spending. For as long as this practice continues, the national debt will rise--even as the President and Congress take credit for creating a new era of budget surpluses.

"Concord continues to emphasize that without using funds earmarked for Social Security, there is no budget surplus," said Bixby. "It is inconsistent for Congress to say that Social Security is 'off-budget' while at the same time using the Social Security surplus to pay for tax cuts or new spending."

The Concord Coalition is a nonpartisan, grassroots organization seeking to eliminate federal budget deficits and ensure that Social Security, Medicare, and Medicaid are secure for all generations. Concord was founded in 1992 by the late former Senator Paul Tsongas (D-Mass.), former Senator Warren Rudman (R-N.H.), and former Secretary of Commerce Peter Peterson. Former Senator Sam Nunn (D-Ga.) was named a co-chair of the Coalition in 1997."

from: http://www.concordcoalition.org/releases/980930_budgetdebt.html

[the-ironically-named-proverbs2]

see 45

[eno_]

True.

The $100,000k+ number comes from all other obligations. Basically, they are unfunded pension obligations, assuming the federal government honors those obligations.

So we can either tell the old folks "No, your Social Security payments don't buy you a gold-plated benefits package." and make them settle for less, or we put a huge burden on our childeren's shoulders.

We can reduce the impact of that by allowing our childeren to escape Social Security and build bigger 401k-like funds using at least part of their current Social Security payments. Does that make it more likely the fedgov will have to tell all those old folks to pound sand sooner? Sure, but it's going to happen anyway.

George Bush and his team have done a good job sneaking some good long-range economics into his budgets, like the HSAs in the Medicare bill. Yes, it will be an economic train wreck, but that is inevitable. HSAs will give more people a bigger incentive to do the right thing when it comes to making future decisions about Medicare and other medical entitlements.

I just hope he gets a good "Super IRA" or something like that in for Social Security.

[eno_]

We can debate the value of government property holdings all night without conclusive answers, but there are good reasons, other than the value of that property, to sell it:

1. Russia knows it has to put property in private hands in order to become prosperous. If Russia is selling government land, why aren't we? Are they more capitalist than us? (Well, yes, but we should be more ashamed of that.)

2. Until we start to liquidiate federal land holdings, we don't really know what their value is. How troublesome is our debt? Who knows, until we expose more of the government to the market.

3. Federal land holdings are questionable constitutionally. It's the right thing to do to sell them or transfer them to the states.

[IrishRainy]

But Bill and Hillary! said we couldn't make good decisions about our healthcare....that we'd stop going to the doctor or getting the kids their shots so we could save money...(and pry spend it on cigarettes and beer!).

Noooo, maybe we should let the really smart folks in the gov'mint make those important decisions for us...they know a lot more than us.

(sarcasm off)

The arrogance of those people just galls me!

[XBob]

16 - "Maybe someone could explain in more detail how this "Enron-style accounting" worked. Hopefully they didn't count the money we borrowed as income."

That's exactly what they did.

Except that as the 'negotiable treasury bonds' expired, they borrowed the money from the Social Security surplus, and replaced them with non-negotiable 'IOU's.

[XBob]

22 - "This obviously cannot be correct. Don't you remember we had budget SURPLUSES during the Clinton years. Surely if we truly had budget surpluses we would have PAID DOWN THE DAM# DEBT. Do I remember incorrectly????"

You remember correctly - the only surplus was a surplus of lies.

Task your memory again of those years, and remember how we had a several hundred $billion defficit, and then over night, we magically, we had a 'surplus'. Remember the talk of 'smoke and mirrors' and how smart the Treasury Secretary was? (Was it Reich or Rubin?)

That was when they discovered how to turn the 'deficits' into 'budget surpluses' - note the term 'budget' surpluses.

If you make $10,000 and expect an income of $15,000, so you 'budget' for $15,000, you still have an income of $10,000, and spend $12,000 but you have a 'budget surplus' of $3000, while the national debt goes up by $2,000.

[XBob]

50 - In other words, they raided the real Social Security surplus, (supposed to go in a lock box - pay down the debt) and spent it for current excess expenditures.

The Treasury Department keeps track of the total monies currently owed, both in Fed and SSI, and that is where I got the table from - US Treasury, Dept of Public Debt.

[Way2Serious]

That may be as good as it gets, given the fact that we have to share the Earth with 30% liberals and 30% people who really don't know what to do, but get all excited about singing birds and happy rainbows.

What you seem to be saying is that the left currently controls the middle ground. This will never change if those on the right don't stand firmly planted.

[Nick Danger]

What you seem to be saying is that the left currently controls the middle ground.

I would not use the word "control," and I would not use the term "middle ground."

I do not accept that the "apoliticals" who can be persuaded to vote liberal one year and conservative the next represent any sort of "middle." It is not that they hold positions midway between ideological liberals and conservatives, it is that they hold no positions at all along that scale. For the most part, they do not think about politics, or indeed about public policy issues, in those terms. If they vote for any particular policy initiative it will be by accident.

When I say that these people "get all excited about singing birds and happy rainbows," I mean that they will vote for a candidate who promises them Morning in America and A Shining City on a Hill even if he's the most conservative candidate since Barry Goldwater. They don't care about liberal and conservative. They want Morning, and they want Shining Cities. You want to win? Give it to them.

Do not assume that I am denigrating these people by describing the way they vote as being emotional and symbol-driven. The vision thing is an important component of leadership ability. If you can't get people to see the Shining City on the Hill, you cannot get them to slog through mud to get there. So in fact these "apoliticals" have an important role to play in screening for this quality in would-be leaders. Faced with two visionless technocrats (Bush-41 vs. Dukakis, for example), these folks don't know what to do. But they'll pick a Reagan over a Carter, or a Clinton over George HW every time.

Bush understands this, in a way his father did not. It's all wrapped up in "the vision thing." Putting humans on Mars is a visionary proposal. It's bold, it's pioneering, it's the American Spirit of Adventure. The rockets and the robots are just mechanical details. What Bush is selling is The Future.

It is true that the people who respond to such things are subject to being manipulated into voting for slogans and pretty-boys. That is a risk of having them participate at all. But without them, we would get more Gray Davis types -- the visionless hacks who keep their nose clean and stay out of trouble, mostly by not doing anything. Politics is full of them. They can even seem effective in quiet and peaceful times, but they are absolutely the wrong thing to have in office if up-pops-the-devil. The "vision voters" offer some protection against that happening.

The left did not so much "control" these voters during the 40 years that the Democrats held the House of Representatives, so much as they did a better job of understanding how to appeal to them. You cannot sell these people ideology. You cannot "persuade" them to adopt good, conservative principles. That is not how their heads work. They respond emotionally to slogans and symbol manipulation. Note again that this does not make them liberals, for they will as eagerly support a Ronald Reagan as a Lyndon Johnson. In fact, I'll bet there are millions of people whom the press would call "middle of-the-road" (that I would call "apolitical") who voted for both Reagan and Clinton, and don't see anything the least bit weird about that.

My point is that if you try to appeal to these people with grinchy-sounding eat-your-spinach rhetoric about fiscal discipline, they will vote for the other guy every time. We know that because throughout the Bob Michel era in the House, that's exactly what happened. The Democrats successfully positioned themselves as the party of generosity and compassion, while positioning the hapless Republicans as cold-blooded Scrooges... a position the Republicans cheerfully accepted because they interpreted it to mean "fiscally prudent." The result was 40 years of Democratic rule, the Great Society social programs, Eco-nuts with badges, and federal funding of Marxist feminism.

It would be wonderful if we could have neither Great Society programs conducting animal husbandry experiments on poor people, nor socialized medical insurance buying medicine for the elderly. But we know from 40 years of Democratic rule that that outcome is not one of the possible choices. What will happen instead is that the apolitical vision-seekers will vote in the guy who offers an End To Poverty, or some other wonderful thing. You have to offer an alternate vision, or you'll lose, because there are people out there who select on "visionary leadership" and nothing else. This is reality. It's how The Lord wants it to be. Accept it, and ask the real-world question, "OK, now what?"

[ordinaryguy]

When assessing acceptable debt load, I consider the ability to repay the debt. That means liquid assets and cash flow. I am unwilling to sell my car to repay a loan. Therefore, I would not consider that asset when considering the loan.

If you simply considered net worth, then you could be broke, yet buy any car you wanted. Borrowing 100% of the cost of the car would, according to your method, leave you in the same financial situation. That is, zero net worth. Then the first payment would come due. What would you do then? There is a reason the bank wouldn't have given you that loan.

[Paul C. Jesup]

http://www.freerepublic.com/focus/f-news/1070539/posts

Please note I was off one item on my first post, I meant 'paid down' and not 'paid off' in this sentence: "The U.S. Government for the past 70 years has been borrowing like no tomorrow and not ONCE in the last 70 years has the U.S. Government EVER even paid down a penny of that debt."

[tm22721]

The debt is not about absolute IOUs but interest rates which are about to skyrocket this spring.

The party is over. Even Greenspan won't be able to hold off the resulting hyperdeflation or hyperinflation necessary to reduce the debt in relative terms.

It must happen because foreign powers have too many dollars to let the party go on.

BUMP