For a refresher, you can go here and see the first part, which covered the history of the National Debt.
Disclaimer: This is a diary on the long-term implications of our federal budget and is not a commentary on the current economic crisis.
We'll start off with why our long-term budget future is an unprecedented situation, what are the components creating that problem, and FAQ's.
Tomorrow we'll round it off with the negative impacts of our debt and some possible solutions.
Here's a look at the money we owe in the future for 2 mandatory entitlements, Social Security and Medicare. Keep in mind this already accounts for the expected future taxes from the FICA Taxes. We would owe 40 trillion on top of that!
More below the fold.
So just what is 52 trillion dollars. The United States GDP is only around 13 trillion dollars. The entire net worth of the whole country (all the individuals in the country is about 55 trillion dollars). So that means if we seized everyone's home, 401k, bank accounts, and so forth, and handed it all to the government, and set that aside we'd just barely pay for all these programs.
So why is this different from earlier times when our debt has gone up and down?
Our population is getting significantly older and our entitlements are geared towards older people. Secondly, we have , once in the 1970's, and again in the 2000's, we increased benefits in Medicare and Social Security. (In the 1970's Social Security benefits were pegged to inflation, and in the 2000's, Bush created a prescription drug plan for seniors).
Most budget appropriations only need 51 votes, entitlements however, need 60 votes to change. Because of the heated emotion surrounding these programs, they are rarely modified or discussed. Social Security has been described as the Third Rail of American politics. Sadly, Social Security is only the tip of the iceberg. Medicare, and Medicaid are much more costly and difficult to reform by its nature.
Social Security
Social Security will start running debts in 2017. Social Security has at least 2.5 billion in Trust Fund money. Problem? The money isn't there. The Trust Fund is a box of IOU's. The underlying problem is that our population is getting older. The issue of the Trust Fund being empty was popularized by Gore in 2000 by the discussion of the "lawkbox".
Medicare and Medicaid/SCHIP
Medicare, the program that some want to use as a model for socialized medicine, has 50 billion in fraud every year. Medicare has been running debts since 2001 and is estimated to go insolvent in the next two decades. Note that Medicare is already a single-payor system, and the spending for this program is still set to accelerate to record levels. Also, Congress authorized an expansion in SCHIP that will also expand health care costs for the government. Those numbers have not been factored in.
Tax Entitlements
Check out this list of special tax provisos that were put into the TARP Bill by scummy politicians compiled by Taxpayers for Common Sense
Millions of dollars lost in the Treasury to rum makers, wooden arrows, and race track owners. Although not a solution to the spending crisis, it will ease the burden to remove these and other loopholes.
Combined we get the following.
Spending
FAQ About the National Debt
- Isn't this all Bush's fault? I really hate Bush , I still have my Impeach Bush bumper sticker on my Prius.
No, although he did increase the Medicare entitlement with the creation of Part D, most Democrats were supportive of a prescription drug addition to Medicare. The only disagreement was over the negotiation of prescription drug prices. Although this is a good idea and would reduce costs, over the long term, there's still a huge debt that's need to be addressed.
- What about Clinton, is it his fault? I still hate him for NAFTA and the primaries are still bugging me.
Clinton helped increase the fiscal solvency of Medicare by removing the cap on Medicare taxes. Medicare currently takes 1.45 percent from each the employee and employer up to infinity. However, Bill Clinton did resist the Gingrich era attempt to reduce the size of Medicare. Gingrich also opposed the 1993 tax increases on Medicare, so it is no surprise the two did not get along.
- Is this a Media/Corporate/Wall Street/neocon/ Larry Sumners / (Your bogeyman entered here) scam to destroy the government.
No, groups ranging from the Left-Leaning Brookings Institution to the right-wing Heritage Thinktank believe the National Debt is an important issue that must be addressed. The Concord Coalition, founded by Paul Tsongas (D-MA) and Rudman (R-NH) focuses on the issue, as does the Peterson Foundation.
- Can't we just raise taxes, don't you know great it is to raise taxes?
As noted above, even in the high tax era of the 1950's to 1970's, Taxes were never more than 23 percent of the GDP. Estimated spending will reach up to 30 or 35 percent of the GDP. We can not bridge such a gap through tax increases.
- I want to know more tell me how?
There is plenty of literature on the National Debt that is informative. I.O.U.S.A., the Peterson Foundation, David Walker, and the Concord Coalition are all good sources.
- Ok, so what's your solution, since you pretend like you know everything?
I'll discuss some solutions and the dangers of not acting in time tomorrow.