Robert Bixby, Executive Director,
The Concord Coalition.
For years, we have watched the as our national economy has wreaked havoc in our personal and professiona lives. And while it seems that the smoke may be clearing a bit, according to our first program in Boston, the worst may be yet to come.
On Wednesday, September 17, The CFO and Controllers RoundTable Boston welcomed back Robert Bixby, Executive Director of The Concord Coalition, for “The Fiscal Outlook Campaign,”to discuss outlook updates for U.S. fiscal policy, and why the declining deficits don’t signal a sustainable trend.For a link to Mr. Bixby’s PDF presentation and other resources, click here.
We’re On An Unsustainable Path
According to The Concord Coalition, we are on a trajectory where, in a very short time, our debt will rival WWII era levels as a share of the economy. That was largest level in our history; but if current policies on taxes and spending remain in place, debt levels will double that of WWII by the 2040’s with the trend still heading higher.
However, these projections do not assume a full-scale mobilization of the country’s resources to fight global tyranny, rather, these projections assume a relatively peaceful security climate and stable economic growth. They also assume that our nation will continue to avoid making tough choices about our levels of domestic spending and taxation.
Such a large debt buildup will have troubling consequences. Even before reaching an unsustainable point, it is likely that the debt buildup will lead to slower economic growth and less private investment, and possibly much higher interest rates We will also saddle future generations not only with a poorer standard of living, but with less flexibility to make their own fiscal and budgetary choices because they will be forced to pay large sums to service debt and will be constrained by budget priorities they had no part in setting.
It’s Not Annual Appropriations That Are Sinking The Ship
So where are we seeing this falling apart? Mostly in the area of “automatic” spending, or spending dictated by permanent law instead of the annual Congressional appropriations process, which has changed over time.
Both mandatory spending and interest costs are determined by legal formula, and are not voted on by Congress. Discretionary spending is voted on each year by Congress in the appropriations process. Thus, much more of our spending is now on autopilot.
During the 1970s and earlier, most of our spending was discretionary, particularly in defense. Today, most of this spending is mandatory, specifically on Medicare, Medicaid, Social Security and interest on the debt. In fact, Social Security, Medicare and Medicaid, as compared to all other federal spending, currently add up to nearly half of the total federal budget. And this cost is only going to go up.
Why? The percentage of the population age 65 and over (those who comprise the bulk of who benefits from the Social Security and Medicare programs) will gradually increase until it grows to over 20% of the population by 2044.
In fact, the baby boom transformation has actually begun. The first baby boomer became eligible for early retirement benefits through Social Security in 2008 and eligible for Medicare benefits in 2011. Nearly 10,000 individuals become eligible for Medicare every day.
However, while the number of retirees is growing, there are now less workers paying into the system. As such, the only options to close this gap would be to raise tax burdens on workers, shrink benefits for retirees, a combination of the two, or pile on even more debt.
Further compounding this issue are interest rates. While they’re low now due to the unique nature of our financial crisis, they will eventually go back up, and we will be saddled with a much higher debt due to lower revenues and the dramatic increase in government spending.
In fact, increased interest means that we are dedicating a large amount of money to servicing our debt, a less productive use than other forms of spending. We’re already spending more on interest than Education, Transportation, and Homeland Security combined. The Concord Coalition projects that interest costs will be the fastest growing program in the federal budget.
We Can’t Not Talk About Taxes
One characteristic of the budget that’s receiving a lot of attention in policy debates are the numerous deductions, exclusions, loopholes and special provisions in the tax code. Because these are economically equivalent to mandatory spending programs, in that they involve the government encouraging and incentivizing behaviours with economic resources – and that such decisions are written into law – they have been given the name ‘tax expenditures’ or ‘tax entitlements.’ In fact, almost half of all individual income tax revenue and corporate tax income is lost due to these provisions.
While the shorthand “loopholes” is sometimes used to describe tax expenditures, one glance at the list of the largest tax expenditures shows how they are large federal programs, deeply embedded in the fabric of the nation’s economic and social life. That is why they are as difficult to tackle as other entitlement programs.
The problem with using the tax code for these purposes is that it is an inefficient and regressive delivery system for these benefits. They increase the complexity of the tax code — reducing efficiency. They also provide a larger benefit to those who earn the most income — making them regressive.
Over 70% of Americans don’t earn enough income or benefit enough from the provisions to itemize their deductions. And, those in the higher tax brackets get substantially higher subsidies from the government for these behaviors because a deduction’s benefits are determined by one’s tax bracket.
So What Can We Do?
First, we need to agree that this is not only an economic issue, but a moral issue as well. Although the immediate potential economic consequences of continued fiscal irresponsibility are severe, they are going to have the most impact on future generations.
Secondly, making the changes and tough decisions necessary is an act of a nation – individuals, coalitions, and political parties – who need to band together to ensure a solvent financial picture for generations to come.
The Fiscal Wake-Up Tour and our other grassroots initiatives have demonstrated that people of different political and ideological perspectives can agree on the need to do something to get us off this unsustainable fiscal track.
Individual action to work on solving the nation’s fiscal challenges is a difficult thing to explain, because ultimately our political leaders have to make necessary changes in our tax and spending laws.
- Federal Fiscal Policy: Still Crazy After All These Years Presentation (PDF Download)
- The Concord Coalition’s Website
- 2011: The Year of the Fiscal Wake Up With Robert Bixby, Executive Director, The Concord Coalition
- TD Bank’s Craig Alexander on The State of the Economy
Photos and More Information
For more information on this or any of the upcoming events The CFO RoundTable has planned, please click here.
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