The State of the Union: Broke

The State of the Union: Broke

By Robert Robb - January 29, 2011

If President Barack Obama were being candid, he would have begun his speech on Tuesday as follows: "The state of our Union is ... we're broke."

However, it is clear that Obama does not regard the financial condition of the federal government as the most important challenge facing the country. Instead, he regards additional government actions and spending to improve our global competitiveness as more important.

Moreover, the real message of the State of the Union address is that Obama is not going to provide presidential leadership to put the federal government on a sound financial footing until at least after the 2012 election.

The federal government, however, really is broke. According to the Congressional Budget Office, the federal deficit will reach $1.5 trillion this year. That will be three consecutive years of deficits in excess of a trillion dollars.

This year, for each dollar the federal government spends, it will borrow 40 cents of it.

And it only gets worse from here.

So far, the Social Security trust fund surpluses have been helping to finance general governmental operations. That's coming to an end.

Benefits already regularly exceed income from dedicated payroll taxes for the Medicare hospitalization and Social Security disability programs. According to CBO, this year Social Security retirement benefits will also exceed dedicated payroll taxes. That deficit becomes chronic and growing beginning in 2016.

There are those who say, don't worry, the Social Security trust fund is owed trillions by the general treasury for all those years it was running a surplus. That's true. But the general treasury has no money to pay it back. The only way for the general treasury to get the money to pay its IOUs is to borrow even more.

So far, despite the sorry state of its finances, the federal government has been able to borrow at cheap rates. That has to be coming to an end. The dicey global financial conditions have artificially inflated the demand for the debt of the U.S. government. As investors gain more confidence in alternatives, loaning more money to an entity that is already borrowing 40 cents on every dollar is going to look a lot less attractive.

The wisdom of Obama's strategy of government investments to improve competitiveness can be debated. I'm dubious. But until the finances of the federal government are put on a solid footing, it doesn't matter.

Obama appointed a debt commission to make recommendations about putting the federal government's finances in order. It did a surprisingly good job. It produced a plausible blueprint on reducing spending and reforming taxes in a way that both raises more money and is better for economic growth. The only place it whiffed was on Medicare spending.

Obama, however, has not embraced the recommendations of his commission. Nor has he offered any proposals of his own that make more than a minor dent in the problem.

Now, I have no idea whether Republicans are willing to get serious about truly fixing the federal government's finances either. The assumption isthat doing so will be hugely politically unpopular. Neither side wants to go first.

Until now, the notion that truly fixing the federal government's finances would be politically suicidal was probably sound. But I sense that now is different, that the American people understand that the federal government has gotten in way over its head, and getting out is going to require big changes. The American people may now be ready to accept the sort of recommendations made by the debt commission or even the entitlement reforms House Republican Budget Committee Chairman Paul Ryan has proposed.

However, I also increasingly think it doesn't matter. At some point, people aren't going to be willing to loan the federal government huge sums at favorable rates. And then the politicians and the body politic won't have a choice.

That ugly day is probably coming sooner rather than later.


Robert Robb is a columnist for the Arizona Republic and a RealClearPolitics contributor. Reach him at

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