March 2, 2009

March 2, 2009 | Commentary on Federal Budget

The Looming Fiscal Wipeout

Before buying a new house and two new cars, most families would check their finances to make sure they could afford those purchases. Things operate in reverse here in Washington.

President Obama just signed into law one of the most expensive pieces of legislation in our country's history. Now Congress must approve the FY2009 omnibus spending bill. Within the first month of the Obama administration, our country will have taken on more than $1 trillion in new debt. And so, at this late date, a much-needed reality check of our country's finances and budget is in order.

Chief among our concerns should be what to do with our expensive entitlement programs, Social Security, Medicare and Medicaid. All are in dire need of reform.

With a price tag of almost $800 billion, the so-called stimulus bill cannot be written off as another in the long line of costly bills approved by Congress. In fact, that one bill alone is almost as big as the 16th biggest economy in the world (behind Australia). And the final $787 billion figure doesn't even include interest that will accrue over time. In short, it's very likely that our children and perhaps even grandchildren will still be paying for this massive bill.

And bigger spending problems loom .According to the Office of Management and Budget, in 2007 alone the cost to pay for Social Security, Medicare and Medicaid was $1.14 trillion. But beyond the cost of these programs, the changing demographics of this country are a real cause for alarm. Currently encompassing 8.4 percent of our GDP, economists predict that paying for these government programs will account for nearly 15 percent of our GDP when today's newborns begin their first day of college.

The reason for this huge spike is due to many factors, but among them is the fact that we simply have fewer workers paying into the system and more drawing out. In 1950 there were five workers for every retiree. In 2008 there were three workers to every one retiree. By 2030 there will be only two workers for every retiree.

Thanks to advances in medicine, retirees are living longer and collecting more from the Social Security pot. While this is a "good" problem, Congress has simply looked the other way when confronted with these changing demographics, rather than make the necessary changes to sustain these programs.

If conservative estimates that the cost for the entitlement programs will encompass nearly 15 percent of our GDP in less than two decades turn out to be true, Congress will be forced to make uncomfortable decisions at our peril. With Congress having less to spend, vital federal programs like funding for our national defense could get the ax. And in these dangerous times we certainly cannot afford to cut funding for our military.

The truth is that Congress can no longer continue to stall when confronted with this issue for fear of political repercussion. Surely politicians would much rather be talking about distributing more federal money than bringing up whether to rework the formulas for distributing benefits for Social Security, Medicare and Medicaid. But with the crisis growing, it's simply inexcusable to ignore the prospect of this impending fiscal collapse.

If Congress isn't ready to start making some bold changes, a blue-ribbon, bipartisan commission charged with making recommendations to the structural changes necessary to ensure solvency for these costly programs would be a good first step. Republican Rep. Frank Wolf of Virginia and Democrat Rep. Jim Cooper of Tennessee have proposed such an idea, which shows that both political parties view this as a serious issue.

There's little doubt that we're facing challenging times, with virtually all of us making necessary changes to our budget. Let's hope that Congress follows our lead.

Israel Ortega is a Senior Media Services Associate at The Heritage Foundation.

About the Author

Israel Ortega Contributor, The Foundry
Accounting

First Appeared in La Prensa (San Diego, CA)