Despite a modest improvement in the 2006 deficit, our nation’s fiscal problems are nowhere close to resolution. Here’s why.
While the deficit dropped from $318 billion last year to $260 billion this year (according to the Congressional Budget Office’s latest forecast), the national debt is getting worse, much worse. This year alone, even with better revenues, the debt is projected to increase by more than $550 billion. This inconvenient truth is almost never mentioned by the Bush administration.
Why the big disconnect between the size of the deficit and the increase in the debt? Because Social Security and Medicare trust funds, which are in temporary surplus, are being used to pay other bills. They are not counted as part of the deficit but are added to the debt. Every penny of Social Security and Medicare money that is now being used to pay for other things will have to be repaid in the future.
This year alone, more than $170 billion of Social Security monies are being borrowed by the general fund of the government to cover other costs. Not one penny of that gets counted in the deficit, but it all gets added to the debt. The same is true of Medicare trust funds that are being diverted to pay other bills.
Looking ahead, the picture only gets more serious. When realistic costs are factored in, such as long-term war costs and the cost of Alternative Minimum Tax reform, we can see that the country’s total debt will rise to more than $11 trillion by 2011 – roughly double the level when President Bush took office. And that is occurring at the worst possible time, just before the baby-boom generation retires.
The exploding number of retirees will be ready to collect Social Security and Medicare benefits, but the temporary surplus in those accounts we now enjoy will be gone. Instead there will be massive shortfalls. And, in addition, we will have to pay back what we have borrowed from those accounts. That’s why dramatically increasing debt now is a ticking time bomb.
Over time, rising debt saps our economy’s strength. Private-sector investment is crowded out as government borrowing soaks up available capital. Rising interest rates raise the cost of living for Americans with higher mortgage, credit card, student loan and other payments. And increasing federal interest payments divert scarce resources from national priorities such as defense, homeland security, education and health care.
Perhaps worst of all, our nation becomes even more reliant on foreigners to buy our debt and finance our deficits. Last year, the United States was responsible for 65 percent of world borrowing, far and away more than any other nation. We now owe Japan more than $600 billion, China more than $300 billion, England more than $200 billion, and Mexico more than $40 billion. We are now the world’s largest debtor nation. It took 42 presidents 224 years to run up a trillion dollars of external debt. Incredibly, this president has more than doubled that amount in just five years.
And what about revenues? Are they pouring into the federal treasury like the White House claims? While revenues have improved recently, revenues as a share of the economy are still well below the level when President Bush took office. Real revenues – that is, adjusted for inflation – have experienced virtually no growth over the last six years. And looking just at 2006, revenues for the year are still expected to come in almost $300 billion below original projections. Is that really worth celebrating?
The hard reality is that the exploding debt threatens our long-term economic security, and the latest deficit projections do virtually nothing to change that.
Sen. Kent Conrad, D-N.D., is the senior Democrat on the Senate Budget Committee.
