The head of the GAO, David Walker, is now saying what I have been saying for years: our government – our nation – is headed toward a major fiscal crisis. We are a nation living vastly beyond our means in almost every possible way, both personal and governmental. We are running up hundreds of billions of dollars in new Federal debt every year on top of the trillions of dollars in unfunded future mandates for social security and medicare, and we are headed into a future where we will have fewer taxpayers to pay off those debts.
Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation. That’s almost as much as the total net worth of every person in America – Bill Gates, Warren Buffett and those Google guys included.
A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today.
And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.
In that situation there are only two choices: we can push tax rates through the roof to pay for it all, or we can default. Default on social security and medicare means that tens of millions of elderly Americans won’t be able to get the benefits they relied on in their retirement. Default on bond payments means the party is over for us economically for a very long time. And this is just talking about official government debt, which may actually be the less worrisome part.
We also have an immense and growing amount of unfunded and underfunded pension plans in the corporate world, and we’re talking hundreds of billions of dollars and growing fast. We’re talking major corporations – Ford, Eastman Kodak, Goodyear and many more. If they default on their pension promises, their ability to capitalize through bond issues is gone and their stock value as well. And who will get stuck with the bill? Taxpayers. But with almost as many retirees as workers, the tax burden would be intolerable.
Just last year, United Airlines declared bankruptcy and announced that they cannot honor their pension promises to 121,000 employees. The Pension Benefi Guaranty Corp, a Federal insurer of such pension plans, took on the burden of providing pensions for 235,000 people in just the last year, from over 120 companies who had promised those pensions but didn’t fund them. Those people will get only a fraction of what they expected, but what they do get will come right out of your pocket and mine.
On top of all of this, we’re also racking up huge personal debts. The average American has over $8000 in credit card debt alone, and more than half only pay the minimum monthly amounts. Those amounts do not pay down the principal balance of the debt, just the interest. With the inevitable increase in taxes to pay for all the debt mentioned above, this will become harder and harder to maintain on a personal level.
The single most irresponsible thing we can do right now is what the government has done over the last few years: institute new entitlement programs that will cost hundreds of billions of dollars, grow the size of government enormously, and cut taxes at the same time so it’s not paid for. We are passing a giant IOU on to ourselves and our children for the future and no nation can survive doing that forever. You simply cannot borrow and spend forever, and we are about to reach the limit on our collective credit card.