By: Michael Tanner
Imagine that one night you gather your family around the kitchen table to discuss your household budget. The first thing you find out is that every week you are spending about 28 percent more than your salary. You’ve simply been borrowing the rest and living off your credit cards. And, of course, you have nothing extra put away for those unexpected expenses, like that leaky roof you don’t know about yet.
As a result, you now have credit card bills totaling more than your entire annual income before taxes. And, on top of that, you’ve made promises to pay for your children’s college education, but you haven’t put away any money to pay for it. Fulfilling that promise will cost you thousands of dollars you just don’t have.
So having realized you have a problem, you decide now is the ideal time to go out and buy a new car.
If the United States government was a family, that’s pretty much the situation it would find itself in.
Let’s start with the overspending. Just like the family in question, the federal government regularly spends more than it takes in, borrowing the rest. According to the Congressional Budget Office, the United States will run a budget deficit this year of roughly $940 billion. However, just like a family has unexpected expenditures that haven’t been budgeted for, so does the federal government. There are natural disasters or military actions, for example. When those emergencies occur, it is likely our deficit will actually exceed $1 trillion for the fifth consecutive year.
And, while deficits are projected to decline slightly between 2013 and 2018, they are expected to begin growing rapidly once again thereafter—particularly once entitlement programs, like Social Security, Medicare, Medicaid, and the new health care law begin a period of explosive growth after 2020.
As with our hypothetical family, all that borrowing eventually adds up. For the US government ongoing budget deficits have resulted in an official national debt of $16.4 trillion as of March 2013. This debt currently exceeds 102 percent of Gross Domestic Product (the value of all goods and services produced in this country over the course of a year). For your family, this would be the equivalent of that credit card debt exceeding your annual salary.
And if you think that’s bad, it only gets worse from here.
Remember that promise you made to pay for your kids’ education? Our government has equivalent promises. Social Security, Medicaid, and Medicare have legally promised benefits to future beneficiaries, but the government lacks the funds to make good on those promises. Trying to do so would take more money than the government has. In fact by 2050, those three programs alone are expected to consume every penny the federal government raises in taxes. That means everything else the government does, from domestic programs to national defense, including paying interest on the federal debt, will have to be paid for through still more debt, or else government will have to raise taxes to crippling levels
On May 7, I will be speaking at NCACPA’s 2013 Employee Benefit Plans Conference in Greensboro. I will be talking about the threat that our growing national debt poses to this country’s future, and the role of entitlement programs such as Social Security, Medicare, and Medicaid. Those programs will have to undergo fundamental change in the future, and those changes will undoubtedly impact your clients.
I hope I will see you there for this important discussion.
Join Mike Tanner as well as other great speakers at this year’s Employee Benefit Plans Conference on May 7. For more information and to register, click here.
Cato Institute senior fellow, Michael Tanner heads research into a variety of domestic policies with a particular emphasis on health care reform, social welfare policy, and Social Security. Most recently, Tanner co-edited Replacing Obamacare: The Cato Institute on Health Care Reform, a compilation of the Institute’s work over the past several years on health care reform and Obamacare, with contributions by over a dozen national experts, including Tanner himself. Under Tanner’s direction, Cato launched the Project on Social Security Choice, which is widely considered the leading impetus for transforming the soon-to-be-bankrupt system into a private savings program. Time Magazine calls Tanner, “one of the architects of the private accounts movement,” and Congressional Quarterly named him one of the nation’s five most influential experts on Social Security. The New York Times refers to him as “a lucid writer and skilled polemicist.” Before joining Cato in 1993, Tanner served as director of research of the Georgia Public Policy Foundation and as legislative director for the American Legislative Exchange Council.