Today’s Downsizer Dispatch . . .
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Quote of the Day:
“Nobody made a greater mistake than he who did nothing because he could only do a little.”
– Edmund Burke
Subject: The Big Issue — $53 trillion in unfunded liabilities
The federal government has made a lot of promises in your name. It has committed you to pay most of the health care costs of the elderly (Medicare), and to provide them with a small stipend (Social Security). It has also borrowed trillions of dollars, to pay current expenses, that your children and grandchildren will have to repay. Unfortunately, future revenues will be insufficient to fulfill these promises.
The Government Accountability Office estimates the future shortfall in funding at $53.3 trillion. Other experts say the number is almost certainly higher. This means that every full-time worker owes a staggering $440,000, courtesy of government excess.
Eventually, that debt must be paid, either in higher taxes, or in reduced benefits. These numbers represent a looming crisis of staggering proportions.
What can be done?
Can the politicians raise taxes to cover the shortfall? The answer is no. The Government Accountability Office estimates that federal taxes would have to double in order to do the job. Can you afford to double your taxes? Could you afford to pay $440,000 in government debts, even if you had two decades to do it?
Would massively higher taxes even work? The answer is no. Higher taxes don’t necessarily result in higher revenues to the government. Increased taxes always lead to increased tax avoidance, a decreased incentive to work and invest, and fewer dollars available to capital markets. The result can be less revenue rather than more.
Can we grow our way out of the problem? The answer is again no. The Government Accountability Office estimates the economy would have to grow at a double digit rate for the next 75 years!, but . . .
In the real world our economic growth is only in the low single digits, and even this rate of growth may be hard to sustain as the weight of rising government expenditures takes more and more rescources from the productive economy.
Indeed, the current debt estimate of $53.3 trillion already takes economic growth into account. If the rate of growth should prove lower than expected then the real size of the unfunded liabilites will be even higher. Those who look to economic growth to magically cure this problem are whistling past the graveyard.
What about benefit cuts for Medicare and Social Security? This might help the government balance its books, but at the cost of breaking government promises and pushing expenses back on the elderly.
What about borrowing? Can the politicians borrow their way out of this mess? Alas, no. Moody, the credit rating service, has already issued a warning that the federal government’s credit rating will be lowered if doesn’t reduce its debt burden. Practically speaking, a lower credit rating means higher interest rates on federal government debt. And that means more and more of your taxes will go to pay the interest on that debt — making BOTH the inevitable tax increases and benefit cuts more painful.
Meanwhile, the politicians continue to run deficits year after year, in spite of the looming financial crisis. More debt means more interest charges. Interest payments will already consume nearly one dollar out of every four you pay in personal income taxes this year.
One sure way to improve things would be to . . .
* Cut government spending now
* Stop running deficits now
* Start paying off the government debt now
* And thereby reduce what we will owe in future interest payments
It’s time to stop whistling past the graveyard. It’s time to start facing facts, which means we must start cutting government spending, now! Downsize DC! Please send Congress a message. Make Congress aware that you’re aware of the government’s dire financial plight. Tell them you want reduced spending now, a balanced budget now, and debt retirement, starting now.
You can send your message here.
Thank you for being a part of the growing Downsize DC Army.
Jim Babka
President
DownsizeDC.org, Inc.