Who'll Pay the Piper?

By Samuelson, Robert J. | Newsweek, February 15, 2010 | Go to article overview
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Who'll Pay the Piper?

Samuelson, Robert J., Newsweek

Byline: Robert J. Samuelson

Big government's big shortfall.

In all the recent reports, speeches, and press conferences concerning the federal budget outlook--including the administration's proposed budget for 2011--hardly anyone has posed these crucial questions: what should the federal government do and why, and who should pay? We ought to go back to first principles of defining a desirable role for government and abandon the expediency of assuming that anyone receiving a federal benefit is morally entitled to it simply because it's been received before.

We have a massive candor gap, led by President Obama but also implicating most leaders of both parties. The annual budget necessarily involves a bewildering blizzard of numbers. But just a few figures capture the essence of our predicament. Here they are:

First, from 2011 to 2020, the administration projects total federal spending of $45.8atrillion against taxes and receipts of $37.3atrillion. The $8.5atrillion deficit is almost a fifth of spending. In the last year (2020), the gap is $1atrillion, again approaching a fifth: spending is $5.7atrillion, taxes $4.7 trillion. All amounts assume a full economic recovery. The message: there's a huge mismatch between Americans' desire for high government services and low taxes.

Second, almost $20 trillion of the $45.8atrillion of spending involves three programs--Social Security, Medicare (health insurance for those 65 and over), and Medicaid (health insurance for the poor). The message: the budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes. As more baby boomers retire in the 2020s, deficits will grow.

Third, there is no way to close the massive deficits without big cuts in existing government programs or stupendous tax increases. Suppose we decided to cover all future deficits by raising taxes. Taxes would rise in the 2020s by roughly 50 percent from the average 1970-2009 tax burden.

That's the guts of it. At age 65, average Americans live for about another 18 years. Government now subsidizes each of them by roughly $25,000 a year (almost $14,000 in Social Security, $11,000 in Medicare). We cannot sensibly afford all these subsidies without oppressive tax increases (see above), draconian cuts in other programs, or immense budget deficits that someday might trigger another financial crisis.

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Who'll Pay the Piper?


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