The impending deluge of red ink

Rocky Mountain News

Published August 3, 2008 at 12:05 a.m.

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The Bush administration's most recent fiscal record is nothing to be proud of. White House officials announced last week that the deficit for the next fiscal year is expected to reach $482 billion.

It's a record in nominal terms, though not as large a percentage of the economy as some of the red-ink torrents of the 1980s and early 1990s.

That said, the current deficit could look like a model of fiscal probity if Washington doesn't get ready for this nation's most worrisome financial problem, namely the bill for the baby boomers' retirement.

Budget Director Jim Nussle tried to put a happy face on the grim forecasts, saying the budget could be balanced by 2012 "if spending is kept in check, the tax burden remains low and the economy continues to grow."

Don't bank on that. Barack Obama and John McCain have their own domestic agendas, with Obama embracing a far more expansive attitude toward spending.

More important, neither candidate has seriously discussed how the country will retire the massive unfunded liabilities of retirement programs for seniors - led by Medicare and Social Security. The initial wave of boomers are collecting their first Social Security retirement checks. Boomer Medicare beneficiaries aren't far behind. At a time Washington should be piling up surpluses, red ink will instead be surging.

Richard W. Fisher, CEO of the Federal Reserve Bank of Dallas, spelled out the bleak implications in May. The amount of money that will be needed to pay all the benefits promised retirees over the next 70 years (over and above payroll taxes and co-payments) is $99.2 trillion (with a "t"). That's a $330,000 burden of debt on every American now alive.

Digging out of that hole will not be simple, Fisher says. It would require, for example, the equivalent of a permanent 68 percent increase in federal income-tax revenues.

There's no political constituency for large-scale benefit cuts; to the contrary, pressure is mounting to make payments to seniors even more generous by boosting the Medicare drug benefit. Even such modest proposals as pegging Social Security benefits to inflation instead of general wage growth tend to be hooted down as an assault on the middle class.

Yet trying to close the gap with dramatically higher taxes could easily smother economic growth, particularly if the increases came through higher marginal income- or payroll-tax rates. Increasing the income level subject to FICA taxes, as Obama has suggested, might have a similar effect, and wouldn't eliminate the red ink in any event.

As unlikely as it may seem, Congress may have to take a broader look at tax policy if it's going to solve this problem. The tax structure should nurture growth, not retard it. Today's tax system clearly fails that basic test by penalizing savings and investment - the fuel for productivity and dynamism. Changing the focus of tax policy from one that punishes saving to one that encourages it will not be easy - perhaps through some sort of consumption tax - but it may be the only way to raise enough revenue without suffocating the economy.

We don't pretend to know the best or least disruptive path to get there. But we do know this: Too many in Washington have ignored the entitlements problem. The longer the beltway remains willfully blind to this pending fiscal crisis, the tougher it will be to make essential changes that keep economic well-being within the reach of Americans, today and for generations to come.

• August 3, 2008

  6:52 a.m.

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  jacka writes:

  Congress overspent, Bush approved every dime.

  Stop the government bailouts.

• August 3, 2008

  7:01 a.m.

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  Mike_In_Hartsel writes:

  CONGRESS overspent.

• August 3, 2008

  7:22 a.m.

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  mrfxx writes:

  For all the blames on Congress, we must not forget the annual "Iraq funding" which wasn't even part of the budget presented to the president (in fact, he and his team came up with the war budget) that was roughly equivalent to rest of the budget. Or is Bush "Teflon President II"?

• August 3, 2008

  7:33 a.m.

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  bxwatso writes:

  Actually, IIRC, NPR reported that the $480Bln includes Iraq.

  Government revenues go up and down with the economy. The thing to do is restrain spending during all seasons, which they never do. GOP or DEM, pork tastes good to everyone.

  That is why I am a huge supporter of TABOR's spending limits. It's the only way I know of to stop the overspending during the good times in order to limit the deficits during the lean times.

• August 3, 2008

  8:09 a.m.

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  Mike_In_Hartsel writes:

  SASQUATCH - the flat tax makes too much sense, that's why it won't be passed by our politicians.

• August 3, 2008

  8:36 a.m.

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  gr8fun4me writes:

  I can't believe how stupid and ignorant people are! This administration has accomplished absolutely nothing in the 7 years it has been in power. The boom times were caused by the spending of the trillions of dollars of a false housing boom by the banks and Wall Street. The war was started on false pretenses. We have a deficit that is twice the size of when he took office. The congress was controlled by the Republicans for 6 years and they got nothing accomplished except giving the rich tax breaks. They had no energy policy except to give even more tax breaks to the oil companies so the executives of those companies could retire with huge packages. And yet the people believe the words coming out of these sleaze bags mouths. Wake up people and do your research! Give me a $100 and I'll give you back a $1 and tell you that you're better off. The latest thing with drilling off the coasts solves absolutely nothing. They have leases on 68 million acres already they haven't even started to drill on yet. Why? And now they are trying put the onus of their mishandling of the energy policy on the democrats! The democrats have their faults too, but the Republicans have ruined our country big time.

• August 3, 2008

  11:29 a.m.

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  fatheromalley writes:

  "Our tax code shold not be used to reward failure and punish success. It should be used to discourage the former and support the latter. There are various ways to get there and the "flat tax" might be the best. It has been a roaring success wherever it has been tried on the planet. "

  Actually "the flat tax" is the status quo "light". It still punishes succcess by taxing it. You still have the myriad of tax incentives that help make up the 64,000 page tax code now.

  The flat tax doesn't address the issue of taxing production, FICA withholding, or the Employer matching funds taxes.
  
  It doesn't address the current hidden corporate taxes that now increase retail prices from 30% to 40%! (Yes all of those "stick it to the man" taxes you are so enthused about, actually comes out of your pocket.)

  The Flat Tax also doesn't address recapturing the 300 billion dollar untaxed "underground economy".

  The flat tax simply doesn't address the basic concept of not taxing success.

  It can't even get a forum in Congress there are only 5 sponsors..

  However, Americans for Fair Taxation have been studying our code for over 10 years and have asked everyday Americans what THEY would think is fair..the have come out with an idea that broadens the tax base, collects equivalent revenue, completely untaxes those in poverty and guarantees that all those that spend will be taxed according to their spending, not according to their success.

  Simplicity is the best remedy for any tax code.

  Whenever you tax something you get less of it. You tax success, even a flat tax on success you will get less success.

  For a consumption tax to really work you must repeal the 16th amendment. Europe has the VAT taxes but they failed to repeal the income taxes so all they got was ANOTHER tax on top of what they already have.

  If anyone here, including the editors, is really serious about tax reform there is a reform that has been sitting in committee for 5 years. Every year it is re-submitted with MORE sponsors (not less as in the flat tax) and every year it fails to make it to the House floor for public debate..

  Now with taxing production causing the loss of the middle class because American firms can't compete successfully without outsourcing or in-sourcing jobs more are listening.

  Americans must take up the cause of repealing the 16th Amendment and taxing according to how much we buy new retail goods and services, not how much we make..

  You are are only hope.. contact your local, state and federal reps today..

  Do you reeeaally want some answers? I'd try www.fatheromalley.com

  This site contains comprehensive answers that are in line with many of the leading experts in their fields but never see the light of day with the mass media, including this paper..

  Love to all,
  Father O'Malley

• August 3, 2008

  2:21 p.m.

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  woodwose writes:

  To gr8fun4me:

  In real life as opposed to your liberal fantasy life where everything happens because you wish it to be so, it makes sense to drill where oil is likely to be. Those 68 million acres that your Democrat heroes tell you that we ought to be drilling in either have no oil, have too little oil to make a buck extracting it even with gas at $4 a gallon, or can't be easily drilled with the technology we have today. However, we do know that we have a lot of oil that is much more accessible and much more economically feasible to drill on the outer continental shelf and in ANWR.

  It makes no sense to extract oil at a cost of $500 a barrel if it's selling for $140 a barrel.

  To fatheromalley:

  Consumption taxes are the most regressive tax known to man short of taxing someone solely because they are poor. Most proposals for national consumption taxes generally throw out a figure of 17% or so. To someone making minimum wage, that $17 tax on $100 worth of groceries represents over 6% of their weekly income. To someone making $200,000 a year or more, it's completely insignificant.

  Furthermore, the current income tax is withheld from each paycheck, so the tax is only calculated on a relatively small number of transactions a year per individual, and is then reconciliated at the end of the year. Twelve transactions if you get paid monthly, 24 if twice a month, 26 if bi weekly, and 52 if weekly. But if you tax every transaction that a consumer makes a year, that's literally thousands of transactions per individual to track per year and you wouldn't even want to reconciliate it at the end of the year.

  Consumption taxes as proposed by Mike Huckabee earlier in the Republican primaries are a complete shell game. (A Republican fantasy as opposed to a liberal fantasy, lol) There's some garbage economics peddled along with the scheme that the things we buy today have "hidden" taxes built into the price and if we switched to a 17% consumption tax that would eliminate those "hidden" taxes and prices would fall enough that it wouldn't really make any difference in the final price, it's just that we wouldn't be paying income taxes anymore and poor people would be helped by getting government grants to help pay the consumption taxes for basic necessities, so it wouldn't really be regressive at all and .......

  You get the picture, if money grew on trees we'd all be rich.

  Except that money wouldn't be worth anything anymore, and something else would replace it.

• August 3, 2008

  6:34 p.m.

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  BikerChick writes:

  ..
  It certainly is fun to throw rocks.

  Would it surprise you to learn that Bill Ritter is on the same path ?

  The ongoing economic recession, reduced wages, reduced property values - all combine to hammer our Colorado financial stability. The Colorado budget deficit will be three billion dollars in 2009 and an additional five billion dollars in 2010. Don't hold your breath - that 'news' is carefully protected, while the 'Entlitlement Society' geniuses play with how to best raise taxes and add social-services benefits.

  What about the dollars spent in Colorado to fund "fringe-benefits" for foreign nationals who are here unlawfully ? It turns out that the year-2009 deficit is almost exactly the same amount as the aggregate local city, county, state and federal taxes paid in Colorado to fund those "fringe benefits." Do you remember voting to use your tax dollars for that purpose ?

  The Governors of many states, likewise. New York is a mess, as is Calirornia... and both state legislatures are still spending recklessly. What happens when a government files for bankruptcy ?

  The time to curb state government spending in Colorado is today. Do you see anyone in Colorado scurrying around to do that ?

  The USA is the laughing stock of the world, for cause.
  ..

• August 3, 2008

  7:58 p.m.

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  Mike846 writes:

  Right on, BikerChick. NO ONE, and I mean NO ONE, will even discuss the back-breaking costs of supporting an illegal immigrant population of the size now in this city, state and nation. Been to an emergency room lately? And that's just one example. How much of our school district issues are rooted in dual language requirements? The Left seems to NOT like "don't ask-don't tell" when it comes to gays, but LOVES it when it comes to illegals. Everyone in the Third World out there HATES the USA and laughs at us. But every last mother's son of them is still trying to get in. Bill Ritter needs to be a one-term governor, and anyone who won't take a stand on spending needs to be voted out, too, just on general principals. The Dems have controlled the state house for what, two years now? How's that working out? More spending, playing shell games with the ill-advised Amendment C money and at least four or five attempts at running "end-runs" on TABOR. Throw the rascals out. Mike

• August 4, 2008

  1:19 a.m.

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  jchase49 writes:

  Finally, someone has written to explain just exactly why the economy does not work, and that is the current tax system. What other tax system penalizes a person for saving and rewards them for being in debt. A consumption tax is the only fair tax that could be implemented because no one can dodge it through the legal manuevering of their tax accountants. Why do you think the major multinationals have their headquarters overseas, to avoid the labyrinth of the present tax system. Only two kinds of people like the present tax system; those who have somebody else do their taxes, or those who benefit from it.

• August 4, 2008

  6:54 a.m.

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  Gonzopozo writes:

  gr8fun4me - RIGHT ON !!!!

• August 4, 2008

  9:57 a.m.

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  ollie writes:

  I think the secret of Cheney's secret energy meetings with the oil company's is out.

• August 4, 2008

  10:11 a.m.

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  irisman writes:

  The Bush Administration funded the Iraq war on credit, while at the same time giving big tax breaks to billionaires. Now Mc Cain wants to make those tax cuts permanent.

• August 4, 2008

  3:47 p.m.

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  MrPeabody writes:

  Check this out - comptroller general David Walker of the GAO telling it like it is. As a nation, we're broke. This isn't a partisan issue - neither party wants to deal with it or talk about it. They'd rather we not know how bad the situation really is. Besides, if they just ignore it, they'll be out of office (and dead) before the bill really comes due.

  http://www.youtube.com/watch?v=INTaWX...

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