The United States is at a crossroads. It is a country neither necessarily in decline nor affirmatively well-positioned for robust growth over the next half-century. Much of what happens in America over the next few decades depends upon fiscal, economic, and political decisions that are being made today in Washington and in state capitals nationwide with regards to tackling persistent long-term budget deficits and our growing national debt. Americans, as empowered citizens with the freedom to choose elected leaders, need to do some soul-searching and ask themselves difficult questions that get at the very heart of the American ethos: who are we as a people and what society do we ultimately want to help shape as we move decisively into the 21st century?
American federal and state budgets are really quite simple accounting games: money goes into the system (i.e. taxes), and money gets funneled out (i.e. spending). If you want to build new roads, fund public schools, maintain a large military and robust police force, insure home loans, provide social insurance for the poor and elderly, or do about a million other things that many Americans take for granted every day, you must ultimately pay for all of this, typically via some combination of national, state, and local taxes. Of course, you can also borrow money from both domestic and foreign investors, but American taxpayers – or perhaps more accurately, the children of today’s taxpayers – are ultimately on the hook for the credit card bill. Since America is still considered one of the safest sovereign bets, U.S. government debt remains relatively cheap. One can’t count on this always being the case, however, as the United States sinks deeper into debt this decade and emerging markets begin offering safer and potentially more secure long-term investment alternatives.
The solutions to our current fiscal problem are as straightforward as they are so often mischaracterized in popular media and politics. At some point, something has got to give. Either we cut government spending, raise revenue via tax increases, or pursue a pragmatic course that does some combination of these two things. Some also say that we can continue to borrow and hope that a robust economic recovery generates enough revenue down the road to pay our bills and future obligations via a larger tax base. Our long-term obligations, however, do not really correlate with the types of short-term spending needed to boost long-term economic growth: indeed, most of our spending today is on defense, healthcare, social security, and national debt service. Simply put, an 85-year old man with myriad health expenditures under his belt during old age – paid for courtesy of the U.S. taxpayer – no longer contributes to the long-term economic productivity of the United States. Yet this is where more and more of our money is being funneled today as Baby Boomers retire in droves and demand the latest and greatest medical services as they enter the twilight of their years.
Other folks make the case that massive cuts in non-defense discretionary spending will provide the panacea we need to dig ourselves out of the fiscal mess that we are in. While I, along with many Americans, admire the theory behind the goal of a more limited government, our long-term fiscal problems do not lie with the discretionary portion of the budget. Now don’t get me wrong, I’m all for making necessary and oftentimes painful cuts to even this small slice of the pie. At the end of the day, however, the real cuts in spending need to be made elsewhere; hence, the need for a new social compact.
The real long-term mess that we are in really only implicates a few areas of the U.S. budget: healthcare, social security, and defense spending. These three behemoths account for about two-thirds of government spending year-to-year, and the first item on the list – healthcare spending – is poised to get radically worse off this decade as more Baby Boomers retire and require expensive payouts, treatments, and care promised to them during years of relative plenty in the late 20th century. These seniors and soon-to-be seniors vote in disproportionately high numbers, so good luck convincing politicians to take on this massive and disciplined voting bloc.
The thing about the United States is this: while our long-term budget problems present a very real existential concern, we have some time to rework the numbers to get our fiscal house in order, provided that we start having a necessary debate over want kind of nation we want to be today. Not tomorrow, and not the day after, but today. Domestic and international investors and foreign countries are still buying up piles of our debt, thereby keeping it relatively cheap, but this speaks more to the absence of meaningful alternatives at present than is it a real vote of confidence in America’s long-term future. Since we have been given a temporary reprieve, however, we should take this opportunity to demonstrate to ourselves and to the world that we are serious about rewriting the terms of an imploding social deal that no longer works for us. That is to say, the cheap debt that continues to fund our nation’s coffers provides an opportunity that may not be available to us in five or ten years, given the expected massive build-up in U.S. debt piles over the next decade and the rise of emerging economies in Asia and elsewhere. But the kicker is that we really must begin to act now.
What must we do? For starters, no politician or set of politicians are likely powerful enough to pursue meaningful entitlement, and namely healthcare, reforms for programs servicing existing seniors and win. In my dream world, I envision an America in which today’s seniors graciously and unselfishly cede some of their hard-earned dollars over to the young in order to rebuild our nation’s finances and invest in the future, but the realist in me does not see this scenario unfolding anytime soon. What we can do, however, is begin asking the young – and by this I mean folks under 50 who are still very active members of the workforce and will be for some time – just what kind of nation they want for themselves in the coming decades as they look to retire. Do they want robust social insurance for the poor and elderly (and, ultimately in most cases, for themselves), with the caveat that taxes will necessarily be raised significantly to cover these long-term expenses? Or would they prefer a society that is a bit more “Wild West” in nature, where the savvy, hard-working, and fortunate are able to maximize their productivity and asset base whilst the poor, less fortunate, and elderly face an altogether harsher – though not necessarily Dickensian – future?
There are certainly pros and cons inherent in both types of societies. The former fiscal regime will probably lead to a somewhat more egalitarian society, but it will likely – though not necessarily – be less productive and slow down economic growth in the aggregate, as taxes on individuals and businesses will lead to less investment and diminish opportunities for innovation and entrepreneurship. The latter option will fuel the best and the brightest to come up with innovative companies that propel the U.S. economy forward faster and allow existing companies to invest more of their profits in current and future endeavors, but many hard-working “average” Americans will suffer and find themselves without a social backstop should they lose their jobs or fail to save enough on their own for retirement and long-term healthcare expenses. Of course, there are also ways to reform both social security and healthcare programs to blunt some of the worst aspects of both of these options, but most proposals that seek to maximize U.S. economic efficiency will likely leave many of the less financially-savvy out in the cold: not every American has the ability to plan effectively for their retirement or healthcare expenditures over the long-term. The question we must ask ourselves as the “younger” generation of Americans is: do we care about these folks and, if so, just how much do we care?
While one would think that we already ought to have had a robust debate over our collective 21st-century American ethos, politicians have abdicated their responsibility to Americans over the past few decades by promising citizens myriad entitlements (“you get a car, and you, and you!”) without asking them – and oftentimes without asking the very same folks who use these entitlements most – to pay their fare share. Cheap debt, fueled by a post-Cold War peace dividend and widespread financial deregulation in the late 20th century, only helped to mask the long-term deficit problem by passing the buck along to the next generation of taxpayers.
As a taxpayer of this generation, however, I say that the buck stops here: it is time for an honest debate about America’s long-term fiscal and social future. Are we going to be a kinder, gentler America that may not always finish first but will give everyone a trophy just for showing up to the race, or are we going to be a lean, mean economic machine that leaves everyone, including some of our own teammates, lying in the dust? The answer to this existential question remains ours to answer, but let us at least begin by having an honest, straightforward debate over taxes and entitlement spending.
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America the Ever Bountiful? Time for a New Social Compact
March 13, 2011
The United States is at a crossroads. It is a country neither necessarily in decline nor affirmatively well-positioned for robust growth over the next half-century. Much of what happens in America over the next few decades depends upon fiscal, economic, and political decisions that are being made today in Washington and in state capitals nationwide with regards to tackling persistent long-term budget deficits and our growing national debt. Americans, as empowered citizens with the freedom to choose elected leaders, need to do some soul-searching and ask themselves difficult questions that get at the very heart of the American ethos: who are we as a people and what society do we ultimately want to help shape as we move decisively into the 21st century?
American federal and state budgets are really quite simple accounting games: money goes into the system (i.e. taxes), and money gets funneled out (i.e. spending). If you want to build new roads, fund public schools, maintain a large military and robust police force, insure home loans, provide social insurance for the poor and elderly, or do about a million other things that many Americans take for granted every day, you must ultimately pay for all of this, typically via some combination of national, state, and local taxes. Of course, you can also borrow money from both domestic and foreign investors, but American taxpayers – or perhaps more accurately, the children of today’s taxpayers – are ultimately on the hook for the credit card bill. Since America is still considered one of the safest sovereign bets, U.S. government debt remains relatively cheap. One can’t count on this always being the case, however, as the United States sinks deeper into debt this decade and emerging markets begin offering safer and potentially more secure long-term investment alternatives.
The solutions to our current fiscal problem are as straightforward as they are so often mischaracterized in popular media and politics. At some point, something has got to give. Either we cut government spending, raise revenue via tax increases, or pursue a pragmatic course that does some combination of these two things. Some also say that we can continue to borrow and hope that a robust economic recovery generates enough revenue down the road to pay our bills and future obligations via a larger tax base. Our long-term obligations, however, do not really correlate with the types of short-term spending needed to boost long-term economic growth: indeed, most of our spending today is on defense, healthcare, social security, and national debt service. Simply put, an 85-year old man with myriad health expenditures under his belt during old age – paid for courtesy of the U.S. taxpayer – no longer contributes to the long-term economic productivity of the United States. Yet this is where more and more of our money is being funneled today as Baby Boomers retire in droves and demand the latest and greatest medical services as they enter the twilight of their years.
Other folks make the case that massive cuts in non-defense discretionary spending will provide the panacea we need to dig ourselves out of the fiscal mess that we are in. While I, along with many Americans, admire the theory behind the goal of a more limited government, our long-term fiscal problems do not lie with the discretionary portion of the budget. Now don’t get me wrong, I’m all for making necessary and oftentimes painful cuts to even this small slice of the pie. At the end of the day, however, the real cuts in spending need to be made elsewhere; hence, the need for a new social compact.
The real long-term mess that we are in really only implicates a few areas of the U.S. budget: healthcare, social security, and defense spending. These three behemoths account for about two-thirds of government spending year-to-year, and the first item on the list – healthcare spending – is poised to get radically worse off this decade as more Baby Boomers retire and require expensive payouts, treatments, and care promised to them during years of relative plenty in the late 20th century. These seniors and soon-to-be seniors vote in disproportionately high numbers, so good luck convincing politicians to take on this massive and disciplined voting bloc.
The thing about the United States is this: while our long-term budget problems present a very real existential concern, we have some time to rework the numbers to get our fiscal house in order, provided that we start having a necessary debate over want kind of nation we want to be today. Not tomorrow, and not the day after, but today. Domestic and international investors and foreign countries are still buying up piles of our debt, thereby keeping it relatively cheap, but this speaks more to the absence of meaningful alternatives at present than is it a real vote of confidence in America’s long-term future. Since we have been given a temporary reprieve, however, we should take this opportunity to demonstrate to ourselves and to the world that we are serious about rewriting the terms of an imploding social deal that no longer works for us. That is to say, the cheap debt that continues to fund our nation’s coffers provides an opportunity that may not be available to us in five or ten years, given the expected massive build-up in U.S. debt piles over the next decade and the rise of emerging economies in Asia and elsewhere. But the kicker is that we really must begin to act now.
What must we do? For starters, no politician or set of politicians are likely powerful enough to pursue meaningful entitlement, and namely healthcare, reforms for programs servicing existing seniors and win. In my dream world, I envision an America in which today’s seniors graciously and unselfishly cede some of their hard-earned dollars over to the young in order to rebuild our nation’s finances and invest in the future, but the realist in me does not see this scenario unfolding anytime soon. What we can do, however, is begin asking the young – and by this I mean folks under 50 who are still very active members of the workforce and will be for some time – just what kind of nation they want for themselves in the coming decades as they look to retire. Do they want robust social insurance for the poor and elderly (and, ultimately in most cases, for themselves), with the caveat that taxes will necessarily be raised significantly to cover these long-term expenses? Or would they prefer a society that is a bit more “Wild West” in nature, where the savvy, hard-working, and fortunate are able to maximize their productivity and asset base whilst the poor, less fortunate, and elderly face an altogether harsher – though not necessarily Dickensian – future?
There are certainly pros and cons inherent in both types of societies. The former fiscal regime will probably lead to a somewhat more egalitarian society, but it will likely – though not necessarily – be less productive and slow down economic growth in the aggregate, as taxes on individuals and businesses will lead to less investment and diminish opportunities for innovation and entrepreneurship. The latter option will fuel the best and the brightest to come up with innovative companies that propel the U.S. economy forward faster and allow existing companies to invest more of their profits in current and future endeavors, but many hard-working “average” Americans will suffer and find themselves without a social backstop should they lose their jobs or fail to save enough on their own for retirement and long-term healthcare expenses. Of course, there are also ways to reform both social security and healthcare programs to blunt some of the worst aspects of both of these options, but most proposals that seek to maximize U.S. economic efficiency will likely leave many of the less financially-savvy out in the cold: not every American has the ability to plan effectively for their retirement or healthcare expenditures over the long-term. The question we must ask ourselves as the “younger” generation of Americans is: do we care about these folks and, if so, just how much do we care?
While one would think that we already ought to have had a robust debate over our collective 21st-century American ethos, politicians have abdicated their responsibility to Americans over the past few decades by promising citizens myriad entitlements (“you get a car, and you, and you!”) without asking them – and oftentimes without asking the very same folks who use these entitlements most – to pay their fare share. Cheap debt, fueled by a post-Cold War peace dividend and widespread financial deregulation in the late 20th century, only helped to mask the long-term deficit problem by passing the buck along to the next generation of taxpayers.
As a taxpayer of this generation, however, I say that the buck stops here: it is time for an honest debate about America’s long-term fiscal and social future. Are we going to be a kinder, gentler America that may not always finish first but will give everyone a trophy just for showing up to the race, or are we going to be a lean, mean economic machine that leaves everyone, including some of our own teammates, lying in the dust? The answer to this existential question remains ours to answer, but let us at least begin by having an honest, straightforward debate over taxes and entitlement spending.
