The budget situation is worse than we thought

A recent article in The Wall Street Journal gave me a start. I know the federal government budget situation is a mess, but I had no idea how huge the problem is. Check these numbers out.

First, we aren’t given the true statistics on our debt problem. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury "balance sheet" does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations.

Because of this, we get to hear fiscal policy discussions that focus on current-year budget deficits, the accumulated national debt, and the relationships between these two items and gross domestic product. We most often hear about the alarming $15.96 trillion national debt (more than 100% of GDP), and the 2012 budget deficit of $1.1 trillion (6.97% of GDP). As dangerous as those numbers are, they do not begin to tell the story of the federal government's true liabilities.

OK, here goes—get ready for some disturbing statistics. The actual liabilities of the federal government—including Social Security, Medicare, and federal employees' future retirement benefits—already exceed $86.8 trillion, or 550% of GDP. For the year ending Dec. 31, 2011, the annual accrued expense of Medicare and Social Security was $7 trillion. Nothing like that figure is used in calculating the deficit. In reality, the reported budget deficit is less than one-fifth of the more accurate figure.

We are told we can solve this problem if we tax the rich and tighten a few loopholes in our tax code. When the accrued expenses of the government's entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.

Can we do this by a tax on the rich and closing loopholes? Nope. If the government confiscated the entire adjusted gross income of American taxpayers earning $66,000 or more per year, plus all of the corporate taxable income in the year before the recession, it wouldn't be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities.

So, what’s the answer? Only by addressing these unsustainable spending commitments can the nation's debt and deficit problems be solved.

A sad but accurate commentary on our president

The following is a powerful essay from Dick Morris, former advisor to Bill Clinton. It's entitled "Obama Doesn’t Have a Clue." We have to work hard this fall to deprive President Obama of support in the House and Senate. Then in 2012 we have to find a much better replacement for him and his failed policies. Here it is:



Conservatives are so enraged at Obama’s socialism and radicalism that they are increasingly surprised to learn that he is incompetent as well. The sight of his blithering and blustering while the most massive oil spill in history moves closer to America’s beaches not only reminds one of Bush’s terrible performance during Katrina, but calls to mind Jimmy Carter’s incompetence in the face of the hostage crisis.

America is watching the president alternate between wringing his hands in helplessness and pointing his finger in blame when he should be solving the most pressing environmental problem America has faced in the past 50 years. We are watching generations of environmental protection swept away as marshes, fisheries, vacation spots, recreational beaches, wetlands, hatcheries and sanctuaries fall prey to the oil spill invasion. And, all the while, the president acts like a spectator, interrupting his basketball games only to excoriate BP for its failure to contain the spill.

The political fallout from the oil spill will, indeed, spill across party and ideological lines. The environmentalists of America cannot take heart from a president so obviously ignorant about how to protect our shores and so obstinately arrogant that he refuses to inform himself and take any responsibility.

All of this explains why the oil spill is seeping into his ratings among Democrats, dragging him down to levels we have not seen since Bush during the pit of the Iraq war. Conservatives may dislike Obama because he is a leftist. But liberals are coming to dislike him because he is not a competent progressive.

Meanwhile, the nation watches nervously as the same policies Obama has brought to our nation are failing badly and publicly in Europe. When Moody’s announces that it is considering downgrading bonds issued by the government of the United States of America, we find ourselves, suddenly, in deep trouble. We have had deficits before. But never have they so freaked investors that a ratings agency considered lowering its opinion of our solvency. Not since Alexander Hamilton assumed the states’ Revolutionary War debt has America’s willingness and ability to meet its financial obligations been as seriously questioned.

And the truth begins to dawn on all of us: Obama has no more idea how to work his way out of the economic mess into which his policies have plunged us than he does about how to clean up the oil spill that is destroying our southern coastline.
Both the financial crisis and the oil come ever closer to our shores — one from the east and the other from the south — and, between them, they loom as a testament to the incompetence of our government and of its president.

And, oddly, to his passivity as well. After pursuing a remarkably activist, if misguided and foolhardy, agenda, Obama seems not to know what to do and finds himself consigned to the roles of observer and critic.

America is getting the point that its president doesn’t have a clue.
He doesn’t know how to stop the oil from spilling. He is bereft of ideas about how to create jobs in the aftermath of the recession. He has no idea how to keep the European financial crisis contained. He has no program for repaying the massive debt hole into which he has dug our nation without tax increases he must know will only deepen the pit.

Some presidents have failed because of their stubbornness (Johnson and Bush-43). Others because of their character flaws (Clinton and Nixon). Still others because of their insensitivity to domestic problems (Bush-41). But now we have a president who is failing because he is incompetent. It is Jimmy Carter all over again.

Who would have thought that this president, so anxious to lead us and so focused on his specific agenda and ideas, would turn out not to know what he is doing?

Our looming crisis

I made a big mistake today. I read an article in Fortune magazine about a looming crisis – America’s debt. At first I thought the worry was about the current Obama-led spending, but it is much, much worse than that. We are facing what the magazine calls a “crushing burden of debt” that gets so big that we are overwhelmed.

The problem is due to policies that are ongoing. Thanks to all the entitlements, especially Social Security and Medicare that will soar as all of the baby boomers retire,the trend of more outlays than revenues will become far worse even after the stimulus spending winds down and the economy recovers. The timewhen all of this will become obvious is not all that far off in the future—2020, according to financial experts. The Government Accountability Office estimates that interest payments will take up nearly one-third of all revenues by 2040 with entitlements eating up the rest of the income. That means there’s nothing for defense, education, veterans benefits, or any of the other federal programs.

Why is this? Money coming into the government is mostly due to the personal income tax, which does not always rise thanks to economic downturns. However, future spending comes about mostly by entitlements, which the magazine says are “programmed to rise far faster than national income.”

What’s the fix? Fortune says bumping up the income tax won’t solve the problem because it would become too burdensome. The writer suggests the use of a VAT(value-added tax) will become a political reality because it can be used as a federal sales tax, allowing the government to collect money on all sorts of purchases. There’s a huge downside to do this because such attacks lands hard on metal and low income earners, who are forced to use a big part of their income to buy things.

So go ahead and complain about Obama economic programs. I’m not a fan of such large expenditures either. But don’t think that things will be OK in a year or two whenhe tells us the economy is recovering and he is putting less money into stimulus programs. This will not fix the mess we are in.

Do some research. Join groups that you think will help work to solve these budget problems. Monitor politicians and their spending habits. If the problem seems like a long way off, think about that year of 2020 when the largest number of baby boomers retire, sending Social Security and Medicare through the roof. If we want to save America as we know it for our children, we are running out of time.