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There will be tremendous hardship on family pocketbooks if Washington drives America over the fiscal cliff come January 1. But the financial damage from that will be as nothing compared to the fiscal crisis and debt that await the Millennials--Americans aged five to 30 who seem doomed to be remembered as America’s Debt-Paying Generation.
As Kevin Williamson wrote in 2010, if you think the housing bust of 2008 was bad, wait until the entitlements bubble bursts. It’s several times the size of the housing bubble, and when it pops, the Debt-Paying Generation will find itself saddled with high unemployment, high taxes, high inflation, and little to no retirement.
Will Washington really let this happen? It will as long as it continues to doggedly ignore basic facts about our debt problems. Here are three basic mistakes our leaders make—to the peril of the rising generation.
One: Both parties carefully chose their facts when they talk about making tough cuts. The House Republican budget targets Medicaid spending and entitlements – both good things. Yet it fails to embrace much needed spending reforms in defense and Social Security.
Democrats talk about slashing defense spending, but refuse to touch the key drivers of the deficit: mandatory spending. And both parties tend to forget about tens of billions in annual corporate subsidies and other “low-hanging fruit” cuts, including 25% of the budget that is wasted on improper payments, fraud, and duplication.
According to calculations done by the Heritage Foundation’s Center for Data Analysis, 69% of the federal budget is made up of 47 programs, most of them social spending. Add in interest payments, and over 80% of the federal budget is made up of 48 areas of federal spending. Yet Democrats focus on defense, a large but shrinking percentage of the federal budget, and Republicans would rather look at nutrition programs for poor mothers than eliminate energy and farm subsidies.
Two: The second problem is related to how many in Washington think about future spending. While most people recognize that health care programs generate the most red ink in the long run, they forget about the impact of interest payments on future budgets Ezra Klein, for example, recently made this error on the Washington Post Wonk Blog when he failed to talk about interest payments being a long-term spending problem.
How important are interest payments to balancing the budget over time? In 2011, they amounted to $454 billion, or 12.5% of the budget, or about 3% of Gross Domestic Product for all debt, and $227 billion for publicly held debt. But these reflect current record low interest rates, as calculated by CBO, of 2.1%. Now suppose the economy pulls itself out of the doldrums, and interest rates return by 2016 to a more normal 4%? Interest on the borrowing for that year’s deficit will be $14 billion greater as compared to today’s debt servicing, and payments over the following decade would jump by 90% as compared to CBO’s expectations of that time period. All told, that extra $1.67 trillion equals $5,352.56 greater debt per American. And as the debt continues to grow, so will those payments.
Three: The third problem comes from misconceptions about what tax reform should do. Many conservatives believe that additional revenue is needed to address America’s coming fiscal crisis. While this may happen as a result of tax reform, the goal of tax reform should be to improve the economy and provide opportunity to the American people, not give more of their money to an oversized and inept bureaucracy.
The simple fact is that revenues are down because of the stagnant economy, but in all actuality the federal government would have plenty of revenue with current rates, which it did prior to the recession. Therefore, it is an error for conservatives to fall prey to the same mistakes liberals make when analyzing the nation’s fiscal and economic problems, and pretend that spending is not the entirety of the problem.
The national debt is the greatest problem facing America, short of an international pandemic or world war. It encompasses national security, retirement programs, energy policy, tax policy, and congressional corruption. Yet Washington continues to focus on Band-Aid solutions instead of aggressive spending cuts, entitlement reform, and tax reform that would offer the Debt-Paying Generation hope for a far less depressing moniker.