January 27, 2005
Bush, Democrats Conspire to Hand
Huge Debt to Kids
By Mort Kondracke

It's rich with irony: AARP, which is more responsible than any single group for the huge disparity in federal spending between seniors and children, is now taking out ads against President Bush's Social Security reforms urging, "let's not stick our kids with the bill."

Then again, we have Bush, who regularly defends his reforms on the basis that "leadership means not passing problems on to future generations and future presidents."

But Bush has already passed on to future generations the cost of his tax cuts - $5.7 trillion over 20 years, if they are made permanent - and his Medicare prescription drug benefit. His Social Security reforms would add $6 trillion over 20 years.

The fact is that this generation's policy activists and political leaders - Democrats and Republicans - have piled enormous burdens of debt on today's children and their children, and there's precious little sign that they plan to lighten it.

The trustees of the Medicare system estimate that last year's prescription drug benefit plan alone will cost $8 trillion over the next 75 years. It was Bush's bill, backed by AARP as a "downpayment" on an even richer benefit. Democrats opposed it as too small.

According to a 2000 report by the Congressional Budget Office, the federal government then was spending roughly $17,000 on each senior, mostly in retirement programs, and $2,500 on each young person under 18.

AARP correctly points out that beneficiaries of Social Security and Medicare have paid premiums into those programs, so they can't be compared exactly to ordinary federal spending programs.

And, states spend far more on young people - particularly for education - than they do for seniors. Still, retirees typically get far more in benefits than they ever paid in premiums. And the fastest-rising state expenditure is for Medicaid, which pays nursing home costs for indigent seniors.

Moreover, the gap between kids and seniors will get even wider when the Medicare prescription drug benefit kicks in next year at an annual cost of more than $50 billion. And when the baby boomer generation retires, starting in 2008, it will become enormous.

"Unsustainable" is the term used by every respected analyst for the burden that today's young people and their children will have to bear to pay retirement benefits - especially medical benefits - for the baby boomers.

The way the Congressional Budget Office put it in December 2003 was that "unless taxation reaches levels that are unprecedented in the United States, current spending policies will probably be financially unsustainable over the next 50 years. An ever-growing burden of federal debt ... would have a corrosive and potentially contractionary effect on the economy."

Similarly, Government Accountability Office director David Walker said last year that "current fiscal policy is unsustainable. ... By 2040, if we continue on our present course, we will have to cut federal spending by more than half or raise taxes to more than 2.5 times today's level to balance the budget.

"At that point," Walker continued, "the federal government would be reduced to doing little more than paying off the interest on the national debt."

Walker repeated his warnings this week on Capitol Hill and announced that GAO will issue a major updated report next month on the nation's long-term fiscal challenges.

During last year's presidential campaign, the bipartisan Concord Coalition took out ads declaring that "Americans face a growing mismatch between what we are scheduled to pay to government and what we expect government to deliver in return."

"On the current path, as the baby boomers retire and cash in their retirement claims, the deficit will race upward from just under 4 percent of the economy (GDP) now to an economically ruinous 12 percent by 2030. Clearly, this path is not viable."

The administration and its supporters brag that the economic recovery stimulated by Bush's tax cuts reduced the fiscal 2004 deficit by $100 billion, and they assert that Bush can halve the current annual deficit, now $427 billion, during his second term.

However, CBO asserts that Bush's claims are overstated - that the deficit last year actually dropped by only about $8 billion, mostly owing to smaller-than-expected income tax rebates - and that economic growth can't possibly eliminate the long-term structural deficit.

Or, as GAO's Walker put it on that point, "although an improving economy will help, we will not be able to grow our way out of the problem. Closing our fiscal gap would require double-digit economic growth every year for the next 75 years. By any measure, that is unrealistic. Even during the boom years of the 1990s, the economy on average grew only 3.2 percent annually."

According to Walker, while the official U.S. debt is $7 trillion, or $24,000 per person, benefits promised under Social Security and Medicare make the actual burden $40 trillion, or $140,000 per person.

Bush has decided to tackle the Social Security piece of the long-term deficit problem. He's expected to suggest a plan combining voluntary private savings accounts for younger workers and cuts in the basic benefit guarantee that will make Social Security solvent after 2050.

In the meantime, though, his plan entails borrowing $2 trillion in the first 10 years and, according to the Concord Coalition, $4 trillion per decade after that.

That's the burden that AARP blasts in its ads, but what the group backs is a tax increase on today's and future workers to pay benefits for seniors, not reducing those benefits, which Concord favors.

Neither Bush nor Democrats are systematically addressing the biggest contributor to the long-term debt burden: surging health costs. By 2040, Medicare and Medicaid could cost more than 20 percent of GDP - an amount equal to the entire federal budget today, including defense.

So, when Bush urges in his inaugural that today's Americans must act to secure the future for their children, the most charitable retort will be, "Yes, but what about ..."

Mort Kondracke is the Executive Editor of Roll Call.

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