Sorry, Mr. President; you can't pay off the debt
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Capitol Connection
Sorry, Mr. President; you can't pay off the debt
We don't want to scare the new leader of the free world, but we thought he -- and you -- should know all the talk about paying off the national debt amounts to little more than a gigantic credit card balance swap.
By Tom Woodruff
Memo to the President-elect, whoever you are
Subject: The national debt
We regret to inform you, sir, that you’re not going to pay off the national debt in the next 12 to 16 years. Not only that, but even your own campaign projections admit we won’t pay off the national debt.
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In fact, Mr. President-elect, the bad news is that under just about all envisioned scenarios, the total federal debt will continue to increase in the decades ahead.
We know, Mr. President-elect, it doesn’t make sense. You, your opponent and President Clinton all spent the fall campaign talking about how, thanks to the surplus, we could cut taxes, add programs, take care of Social Security and pay off the national debt. The plans offered by Vice President Gore and Bill Clinton say the debt would be paid off by 2012. Gov. George W. Bush’s plan sees the national debt eliminated four years later.
What may happen under all the plans, your proposal included, is that the government will engage in the equivalent of a gigantic credit-card balance swap, says economist Allen W. Smith, author of "The Alleged Budget Surplus, Social Security, and Voodoo Economics." Sure, the federal debt held by the public will be eliminated. But all of it will be held by, well, the federal government. That is: the Social Security system, the Federal Employees Retirement System and other federal trust funds.
We know you may be confused, Mr. President. But in these chaotic times, we’d like to vote for a little clarity. So we’re here to add it..
How 2+2=3
Here’s how it works. Let’s start with the Office of Management and Budget’s (OMB) mid-session report to Congress. The report shows receipts, outlays, the surplus and the national debt. Under current spending commitments, the report says, total gross federal debt will actually increase from $5.66 trillion in 2000 to $6.54 trillion in the year 2012. Nothing that you or your opponent propose will improve that outlook. Increased spending or new tax cuts would add more to the national debt.
The way politicians have gotten around the problem of defining the national debt is by separating it into four categories. Here’s who owns the debt as of this year:
Debt held by the public: $3.45 trillion.
Debt held by the Social Security System: $1.01 trillion.
Debt held by the Federal Employee Retirement Fund: $681 billion
Debt held by other federal trust funds: $422 billion.
Under the Gore scenario for "paying down the debt," here’s how the numbers would change by 2012.
Debt held by the public: $0
Debt held by the Social Security System: $4.1 trillion
Debt held by the Federal Employee Retirement Fund: $1.1 trillion
Debt held by other federal trust funds: $1.37 trillion
The Bush proposals would do virtually the same thing, with total paydown of the debt owed to the public delayed until about 2016.
So, what’s going on? Here’s the explanation of Smith, a retired economics professor from Eastern Illinois University and a guest on the Nov. 11 MSN MoneyCentral Weekend radio show: it’s all balance transfers, just like many of us do with our credit cards. A friend might admire you if you said you paid off your Discover card. But your friend might not be so impressed “if you revealed that you had borrowed every dollar of the money to pay off Discover from Visa and that you still owed just as much money as before."
This sleight of hand will become very clear when the annual cash-flow surpluses to the Social Security Trust Funds turn negative, Smith says. Under current forecasts, cash flow will turn negative in Social Security’s Old Age, Survivors and Disability Trust Funds (OASDI) in 2025 (actually 2015, if you don’t include interest paid to the trust funds from general revenue), and the debt held in those trust funds will be exhausted by 2037.
From bad to worse
What happens when cash flow is negative? Here's the really bad news: You and your successor administrations will have to sell new debt to the public, federal taxes will have to go up or benefit outlays will have to be cut. According to a report from the Social Security system’s trustees, just for the OASDI programs (if you include Medicare, fuggedaboutit!), the Social Security IOUs that come due balloons from about $40 billion in 2025 to about $900 billion in the year 2037. So by 2037, the federal government, under current commitments, will have to raise about $900 billion annually just to pay Social Security’s old age, survivor and disability benefits.
In spite of these facts, Mr. President-elect, Congress was on an almost-giddy spending spree just prior to adjourning for the elections, offering up $240 billion in tax cuts over 10 years and tacking on pork-barrel spending programs to various tax and appropriations bills. The current Congress comes back to work on these ideas this week.
As you know, because you campaigned on the promise of tax cuts, Mr. President-elect, Congress may be asked to consider even bigger tax cuts next year.
We didn’t want to scare you, Mr. President-elect, but we thought you might want to know. |
