January 18, 1998

Phony Budget Surplus Is Set To Fleece Baby Boomers

Listen up, baby boomers. Conservative Republicans and liberal Democrats are about to steal your social Security and Medicare birthright.

Supposedly there will be a budget “surplus” in the coming fiscal year -- the first since 1983 -- with which to schmooze voters. The truth is, there is not going to be a real surplus next year, or the year 2000-something.

If you want a little financial supplement to ease your golden years, you had better latch onto some facts and lean on your congressional representatives.

Start with the national debt of $5.6 trillion as this is written. By the time you read it, the debt will be a great deal more because it spirals up at the rate of $23 million per hour.

On its face, this financial over-burden doesn’t seem to warrant concern. It amounts to a bit over three percent of the nation’s total earnings -- otherwise known as gross domestic product.

Nevertheless, it is 15 percent of the federal budget while federal spending is 22 percent of national income. Historically, economies throughout the world start to break down at 25 percent and collapse at 40 to 45 percent.

Here’s the skinny our politicians don’t tell us. The real debt of the United States is at least twice the published figure above. Hard-nosed analysts declare the national debt actually is $24 trillion. This could not be honored without an ultimate income tax rate of 810 percent. You can’t get there from here.

The debt no one talks about is the obligations incurred under the many federal “trust funds” earmarked for future pay-out. Congress in 1983 glommed onto this cash cow by folding it into a “unified budget.”

Thus, the annual flood of red ink since 1983 appears to be slowing to a trickle.

Huzzahs and kudos all around.

In a pig’s eye. If a corporate manager or business proprietor operated like this the government would put them in prison.

Disappearing is the cash with which to pay soon-to-be old folks what they have mostly paid for and been promised in Social Security, Medicare and other benefits.

Liberals shrug, “We owe it to ourselves, and the economy will grow to pay off the future.” They don’t give the odds of probability.

Conservatives urge the government to start refinancing the trust funds, or pull back from the 22 percent federal spending load on taxpayers -- 31 percent including state and local taxes.

President Clinton wants to “invest” the surplus on a variety of new social benefits ranging from education to day-care subsidies for children of working mothers. Little projects, big rhetoric.

The biggest expenditure would expand the Medicare program.

Workers today who retire at age 62 are entitled to reduced Social Security, but not Medicare, until they are 65. Workers fired at age 55 without a continuing health plan are unable to qualify for affordable, private insurance.

Clinton proposes to close these “gaps” by bringing affected persons into Medicare. They would offset the increased cost in the Medicare program by paying a monthly premium of $300 to $400 until they reach 65.

Critics believe it quickly will become evident that people most in need will not have $3,600 a year for premiums. They will have to be covered by higher payroll taxes on remaining workers -- as happened with the original Social Security and Medicare plans.

House Speaker Newt Gingrich wants to cut taxes for workers and savers. He asserts this would downsize government, upsize job creation and spur the economy by putting discretionary buying power into the hands of those who earned it in the first place.

Having learned from two government shut-downs that political approval flows from cooperation, Clinton and Gingrich will divvy up the surplus mirage.

There are a few statesmen with less dramatic, but more useful, suggestions:

• Put back “trust” into trust funds by separating them once again from the general budget.
• Wait until a real surplus occurs.
• Apply any surplus -- real or imaginary -- to the national debt.

Senator Daniel Moynihan, a Democrat even Republicans have learned to love, says, “We have dealt with the deficit, now is the time to deal with the debt. We must reduce the national debt by $1 trillion over the next ten years.”

Rep. Bill Archer, chairman of the House Ways and Means Committee, and a Republican respected by Democrats, states: “When a surplus arrives, and it will, thanks to a Republican Congress, it should be used to pay down the national debt.”

Right on!

Net interest payments on the debt were $244 billion last year. This “service cost” comes off the top and buys nothing -- not food stamps, not tax relief, not interstate highways, not military hardware, not toxic-dump clean ups.

A substantial payment on the national debt would kill two birds with one stone.

• It would free an equal amount for such good things as tax cuts, education, drug prevention and welfare for the poor and unfortunate.
• By reducing debt, credit would be improved. This would lower interest rates and make more capital available for private enterprises which, alone, create jobs.

More importantly, it would reserve an equal amount of borrowing power which the nation will need to make good the promises to baby boomers.

By Lindsey Williams, columnist for Sun Coast Media Group newspapers