The Truth About “Fiscal Responsibility”
President Obama convened a “fiscal responsibility summit” at the White House on Monday, February 23. CAF Co-Director Roger Hickey was one of the participants. Progressive leaders, such as Hickey, support fiscal responsibility, of course. Every mainstream economist tells us that in a deep economic downturn—like the present one—the responsible course is to stimulate the economy with deficit spending. After a recovery, which may take years, everyone agrees that we will need a strategy to reduce deficits over the long-term.
The problem with a debate over “fiscal responsibility” is that right-wingers try to turn it into an opportunity to claim we have a problem with “entitlement programs” that require us to make drastic cuts in Social Security and Medicare. This is both factually and morally wrong.
The right-wing argument—that the “real national debt” is $56 trillion—is fundamentally dishonest. Led by Wall Street tycoon and former Nixon Commerce Secretary Pete Peterson and his billion-dollar foundation, conservatives argue that: “As of September 30, 2008, the federal government was in a $56 trillion-plus fiscal hole based on the official financial consolidated statements of the US government. This amount is equal to $483,000 per household and $184,000 per American.” [Peterson Foundation statement in The Nation] This is, in fact, the projected debt 75 years from now if both complicated projections are exactly accurate and no changes in policy occur for generations. The way Peterson lumps together real concerns with phony ones is disingenuous—intended primarily as a scare tactic.
The long-term budget problem is almost entirely caused by skyrocketing health care costs. Even if you take Peterson’s own figures, $6.6 trillion of this 75-year debt is a projected shortfall in Social Security, $12.2 trillion is our current national debt, and a whopping $36.3 trillion is attributable to Medicare. [Peterson Foundation] So 85 percent of the increase in the currently-projected debt over the next 75 years is due to Medicare. Let’s examine each of these figures.
The current national debt was caused, overwhelmingly, by Presidents Reagan, Bush, and Bush. The national debt was less than $1 trillion when Ronald Reagan became President. His tax cuts and soaring military spending nearly tripled the debt to $2.6 trillion. Under George H.W. Bush, the debt increased by more than 50 percent to $4.2 trillion. Under Bill Clinton, the debt increased to $5.7 trillion. George W. Bush did the most damage, nearly doubling the national debt from $5.7 to $10.6 trillion by the time he left office. [U.S. Treasury Bureau of the Public Debt] (Peterson adds the cost of future federal and military retirement benefits to get his $12.2 trillion figure.) So, nearly 80 percent of the current debt—about which conservatives now bitterly complain—was caused by the three most recent conservative Presidents.
Social Security does not pose a big fiscal problem. The nonpartisan Congressional Budget Office projects that Social Security's FICA income will exceed expenses until 2019. [CBO] (The more conservative fund trustees say 2017.) Including interest income and income from taxation of benefits, the trust fund’s surplus continues to grow until 2027. The fund’s assets, held in the form of U.S. Treasury securities, will last until 2046. If we did absolutely nothing, Social Security payments would not end in 2046, they would begin to slowly decline. Of course, no one will allow that to happen. If official income projections are just slightly low, as some economists suggest, then little or no fix is required. [Dean Baker, Paul Krugman, Christian Science Monitor] If those projections are correct, it would be unethical to cut benefits for retirees who, in good faith, paid into the system throughout their working lives. So, if it turns out the system needs more money, the answer is to increase revenues in one of two ways: (1) eliminate unfair tax breaks or subsides for the wealthy and spend the proceeds on Social Security, or (2) apply the FICA payroll tax to a portion of earnings above $106,800, which is currently tax-free. In any case, there is no rush.
The real problem is projected increases in health care costs, which makes the current system—both Medicare and private insurance—unaffordable in the long-term. Focusing on federal programs alone is dishonest. The problem is our broken health care system, both public and private. Contrary to the conservative talking points, “the aging of the population…accounts for only a modest fraction of the growth” in Medicare costs. [Congressional Budget Office] The main factor is the exponential growth of health care costs. In fact, health expenditures as a percent of GDP have more than doubled since 1970, growing from 7.0 percent to 14.8 percent in 2002. [Congressional Budget Office] So the solution is not to cut health care for the elderly, but to reform health care generally to get control of costs.
The conservative position is a lie. As described above, we have a crisis in skyrocketing health care costs. There is no crisis in Social Security.
The conservative proposal is immoral. In 1983, the federal government increased Social Security’s FICA payroll tax from 5.08 to 6.2 percent. That increase created a $2 trillion surplus in the Social Security trust fund. It would be wrong to cut benefits by pretending that America doesn't owe the funds held in trust to the workers who accumulated the surplus.
The long-term debt problem points to only one solution—universal health care. By bringing up the problem of long-term public debt, the conservatives have unwittingly made one of the best arguments for a national health care for all plan—now. Long-term debt can only be brought under control by stopping huge increases in health care costs. That can only be done as part of a national universal health care plan. And this is ther perfect time to implement such a plan because initial start-up costs would stimulate the economy in the short run while health cost controls would protect the economy in the long run.
The White House summit on fiscal responsibility could do some real good, but only if it focuses on real fiscal problems and their solutions. They are:
* Control long-term health care costs as part of legislation that ensures quality, affordable health care for all. Done right, this can nearly eliminate the problem of long-term debt. More…
* Cut the fat out of the military budget and end the war in Iraq—which will save hundreds of billions of dollars per year. More…
* Eliminate unfair tax breaks and subsidies for rich individuals and corporations—which will also save hundreds of billions per year. More…