The current fiscal policy in the U.S. is unsustainable. It will lead to higher taxes, reduced services and an unshakable debt for future generations.
That was the message delivered last week in the latest installment of the “Fiscal Wake-up Tour” by Robert L. Bixby, executive director of the non-partisan economic policy group The Concord Coalition. Bixby and others with Concord are traveling across advocating generationally responsible fiscal policy. The Tour was in Jackson September 24 as part of the monthly meeting of the Mississippi Economic Forum.
“It is clear that the next President is going to face a very tough situation, regardless of campaign promised,” Bixby told an audience at Hal & Mal’s restaurant in Jackson.
To highlight the economic hardships, Bixby pointed to the federal budget deficit. Last year, it was $162 billion. This year, it will rise above $400 billion. And next year, it will reach more than $500 billion.
“And that’s not even counting what (Congress) passes in D.C. in the next couple of days,” Bixby said, referring to Treasury Secretary Henry Paulson’s $700-billion bailout plan for Wall Street, in which the government would buy up mortgage-backed securities that have led to the downfall of Wall Street institutions such as Bear Stearns, Lehman Brothers and Merrill Lynch. It would put the debt burden on a tax base that is struggling to meet the financial demands of the federal budget, leading to large amounts of borrowing from foreign investors.
“Much of the budget is on autopilot,” Bixby said, alluding to the 42% of expenditures that go toward Social Security, Medicaid and Medicare. “Those are determined by benefit formulas. Congress has little control over that and that is a problem. It is going to cause some serious repercussions down the road.”
Because half the budget is already guaranteed, it leaves little room for discretionary spending on things like education and transportation, the latter of which is suffering because the Highway Trust Fund — funded by the gasoline tax — was nearly empty and recently required an $8-billion infusion.
“Transportation is a swamp in the federal budget,” Bixby said. “Stuff goes in and is never heard from again. It is difficult to follow the money in a highway bill.”
Also worrisome is the U.S.’s increasing reliance on foreign money to pay for American policies and services. In 20 years, the percentage of public debt held by foreign investors is up 20 percentage points, to last year’s level of 50%.
“That’s where we’re going to have to continue to go, is foreign investors,” Bixby said. “And that’s not necessarily a bad thing, on its face. People investing in your economy can be good. But it does present a certain vulnerability when we’re financing our lifestyle with foreign money.”
The Baby Boomer population is aging, with many set to retire. That is going to create a strain on the Social Security Trust Fund, eventually reaching the point that the Trust Fund’s outlays will far exceed its revenues. Bixby said the solutions are simple — raise taxes, cut promised benefits or both — “but the politicians don’t want to hear either. It’s just not politically acceptable for either one of those notions to even be considered.”
Also holding up any sort of reform is a number of budget myths that are what Bixby called “avoidance devices.” They include: The idea that the U.S. can economically grow out of having to make difficult budget choices, that eliminating government waste will solve the problems, that healthcare costs can be reduced by delivering it more efficiently or that raising taxes or rolling back some or all of the Bush tax cuts will bring the budget closer to balanced.
Either way, “tax increases in some form have to be on the table (eventually),” Bixby said. “Current fiscal policy is unsustainable. It’s not a great rallying cry, and it doesn’t fit on a bumper sticker, but it’s true. Something is going to break if we don’t change something.”
Contact MBJ staff writer Clay Chandler at clay.chandler@ msbusiness.com .