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Huge bailouts a drop in bucket next to unpaid bill for retirees

Created on September 25, 2008

Huge bailouts a drop in bucket next to unpaid bill for retirees

  1. To read about constitutional hurdles in the bailouts, click here.
  2. For a paper on next steps in the financial cleanup, click here.
  3. To see how to protect taxpayers and restore markets, click here.
  4. For principles to apply in government intervention, click here.

Staggering costs?  Unfunded retiree benefits 50 times higher

  News reports and congressional hearings focus on the eye-popping bill for government bailouts of failed financial houses on Wall Street and in Washington.

    What's gotten far less attention is a price tag for tomorrow's taxpayers that's 50 times higher, to pay for promised benefits for retirees in the Medicare and Social Security programs.

    No question, typical taxpayers think $700 billion is a staggering price to pay for the missteps and misjudgments of high-rolling financiers that prompted the nation's mortgage meltdown. Add tens of billions in related bailouts, including Fannie Mae and Freddie Mac, and taxpayers are being asked to fork over $840 billion -- almost a trillion dollars - to solve the credit crisis.

    Who wouldn't want a small piece of that in tax relief?

    "The long-term answer isn't more federal control, it's a return to free-market principles," Heritage Foundation President Ed Feulner wrote in his weekly column before the House voted Sept. 29 against the $700 billion deal struck by congressional leaders and the White House. 

    "Faced with a crisis of this scale," Heritage's Stuart Butler and Edwin Meese argued, "lawmakers need to consider steps that would be out of the question in more normal times. That is why Congress must structure a recovery plan that involves an extraordinary taxpayer commitment to stabilizing the situation and restoring confidence in the financial system."

    There's been no shortage of questionable add-ons proposed for Uncle Sam's bailouts, and Congress has many steps still to take, as Heritage fiscal experts David C. John and J.D. Foster detailed in recent days. Even so, the estimated cost to taxpayers amounts to a fraction of the nation's unfunded retirement benefits under Social Security and Medicare.

    "Imagine a taxpayer bailout even larger than what's proposed for Wall Street," Heritage senior budget analyst Brian Riedl writes in a new column. "Now imagine it reoccurring every single year in perpetuity. That's our fiscal future unless we fundamentally reform these unsustainable entitlement programs."

    Unless Congress acts, paying all promised retiree benefits would require:

  1. Doubling all tax rates.
  2. Eliminating all other federal programs, including defense and education.
  3. Running massive budget deficits that eventually would capsize the economy.

"Today we're grappling with a very real financial crisis," Riedl says. "While we cannot go back in time and fix it, we can start acting now to prevent the next, clearly visible crisis."