Marching Toward Fiscal Armageddon

When we arrive willy-nilly on the plains of fiscal Armageddon let no politician say bad intelligence put us there. Republican and Democrat, congressman and President, all have been forewarned.

On July 25, 2001, David Walker testified in the House Budget Committee. As comptroller general of the United States, Walker is the budgetary equivalent of the Director of Central Intelligence, and he presented the budgetary corollary of satellite surveillance photos.

"I have consistently stressed," said Walker, "that without meaningful reform, demographic and cost trends will drive Medicare spending to unsustainable levels." Medicare, of course, is the federal health-care program for seniors.

The problem is that while Medicare recipients (like Social Security recipients) are entitled under law to the benefits they receive, the relative number of taxpayers available to pay for those benefits is dwindling. In 1970, there were 4.6 workers per Medicare recipient. In 2030, there will be 2.3. Meanwhile, the cost of modern medicine keeps rising.

The endgame is a titanic clash of interests between taxpayers in their prime, working to support families, and Baby Boomers in retirement, entitled to a government-supplied monthly cash allowance and subsidized health care.

Immediate action to fix only Medicare’s hospitalization coverage, making it solvent for 75 years, Walker said, "would require benefit cuts of 37% or tax increases of 60%, or some combination of the two."

Every year a fix is postponed the coming crisis deepens.

"Assuming, for example," said Walker, "that Congress and the President adhere to the often-stated goal of saving the Social Security surpluses, our long-term simulations show a world by 2030 in which Social Security, Medicare and Medicaid absorb most of the available revenues within the federal budget."

That, he conceded, may be too rosy.

"This scenario," he said, "contemplates saving surpluses for 20 years-an unprecedented period of surpluses in our history-and retiring publicly held debt. Alone, however, even saving all Social Security surpluses would not be enough to avoid encumbering the budget with unsustainable costs from these entitlement programs. Little room would be left for other federal spending priorities such as national defense, education, and law enforcement. Absent changes in the structure of Medicare and Social Security, sometime during the 2040s government would do nothing but mail checks to the elderly and their health care providers."

What has happened since Walker’s testimony? Plenty.

On Sept. 11, 2001, terrorists attacked America. U.S. troops were deployed to Afghanistan and Iraq with no set withdrawal date. The economy grew, but slowly at first. Social Security surpluses were not saved and used to pay down public debt. They were spent as the government took on more debt.

In fiscal 2002, says the Congressional Budget Office (CBO), the federal deficit was $158 billion (after spending all $160 billion in surplus Social Security and Postal Service revenue). In fiscal 2003, the deficit was $401 billion (after spending $162 billion in surplus Social Security and Postal Service revenue). In fiscal 2004, the deficit is projected to hit $480 billion (after spending $164 billion in surplus Social Security and Postal Service revenue). And that’s before any new war-related spending is factored in.

Between now and 2011, CBO predicts, the government will spend all surplus Social Security revenue and still run deficits.

Yet, President Bush and Republican congressional leaders are pushing ahead with a new federal entitlement in the form of a Medicare prescription drug benefit. CBO estimates it will cost about $430 billion over ten years-even before most Baby Boomers retire.

If it becomes law, fiscal Armageddon arrives sooner rather than later.

Last week after Bush urged congressional conferees to finalize the drug bill, a reporter asked him: "Mr. President, with huge federal budget deficits, do you have any qualms about spending $400 billion on Medicare prescription drugs?"

"First of all, no, I don’t," said Bush. "I think it’s the right thing to do. We have an obligation to our seniors. Secondly, we’ve proposed a plan that reduces the deficit in half in five years."

Well, that’s one way to read the numbers. In fiscal 2009, says CBO, the deficit will be $170 billion-far less than half fiscal 2004’s $480-billion deficit. But that’s only if you assume, as the CBO does, that the government will spend every penny of that year’s projected $255 billion in surplus Social Security and Postal Service revenue.

Conservative backbenchers in the House such as Republican Rep. Mike Pence of Indiana aren’t following their leaders into this valley of red ink. They are working to defeat the drug entitlement. They deserve the support of every taxpayer–for if they succeed they will help avert an even more catastrophic budget battle that may await us down the road.