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September 22, 2006
The Dishonesty In The Deficit

Rep. Jim Cooper writes today about the misleading government figures used by all parties when discussing the federal deficit. In today's Examiner, Cooper wants to know if voters understand the difference between $8.5 trillion and $46 trillion:

Ask a congressman what the national debt is, and he will say $8.5 trillion. That’s a lot of money, but it completely ignores our two largest and most important government programs, Social Security and Medicare. If you include the promises made by those programs to workers who are already paying Social Security and Medicare taxes, the national debt jumps to $46 trillion.

So which number is correct? Do we face a mountain, or a Mount Everest, of debt? If you believe that Congress was just kidding about your retirement or health care benefits, we owe $8.3 trillion. If you think America is serious, the total is $46 trillion.

If you look closely at the annual letter you receive from the Social Security Administration, you will see that the benefits you’ve been buying with your payroll taxes are only “scheduled.” That’s a fancy word for maybe. The federal government can revoke them at will, according to the 1960 U.S. Supreme Court decision of Fleming v. Nestor. Wait a minute! Most people, including most politicians, think that America has at least a moral obligation to pay every nickel of those benefits.

This has been the dirty secret of the political class for decades. It's why all of the talk about "lockboxes" for Social Security made economists laugh out loud, and why conservatives have pointed to the rising debt load for entitlement spending with increasing alarm.

The government decided long ago that it only had to report those liabilities for which it had no choice but to fund. Many Americans would have expected that their Social Security benefits would be included in that accounting, since they have paid into the fund all of their working lives. Medicare recipients paying premiums also might be forgiven for believing that Washington is obliged to provide funding for their programs -- but as Cooper pointed out, the Supreme Court took DC off the hook for that decades ago. The decision allowed Washington to continually expand nanny-state benefits with no accounting for its future obligations.

The expansion of the reported deficit has been bad enough. That came from higher spending, every year more than the last, even with the Republicans in charge. Instead of exercising fiscal discipline and trimming the size of the bureaucracy, the GOP has pushed for its expansion in every category during the Bush administration.

However, the announced deficit amounts to peanuts compared to the disaster of entitlement spending, which Cooper calls the Category 5 of political and economic storms, waiting to strike my generation and succeeding ones. Although the government claims it can cancel all benefits at any time and therefore has no obligation to spend the money, any government that reneges on entitlement payouts will get run out of DC on the nearest rail, and the only part of the economy that will thrive will be the commodities markets for tar and feathers.

People expect some benefits to be paid, especially as they near retirement. Many of the generation now approaching that status structured their financial situations on the assumption that these government programs would provide at least some basic support, especially in health care. Why did they do that? Because their elected representatives have told them for decades that those benefits would never be taken away or reduced, and they never told us about the gigantic budget shortfall they built into the system. Anyone who proposed reform got painted as a Scrooge and a danger to seniors all over the nation.

We are about to pay for the dishonesty of successive Congresses and administrations stretching all the way back to the Eisenhower era. Both parties share the blame for this massive deception. The Bush administration at least attempted to address the problem (after worsening it with the Medicare prescription-drug benefit) on the smaller-scale Social Security deficit, but Democrats continued to tell Americans that the problem didn't exist and that we shouldn't worry about what might happen in the future.

Are we still going to buy that explanation? Or are we finally going to realize that the free lunch has never really existed and that we have to come to grips with the problem sooner rather than later? We need a Congress that will have the courage to start fixing the problem now rather than continuing to add to it, and one with the honesty to admit that we are facing a catastrophe.

UPDATE: While Congress continues to promise pensions without providing concrete funding or even acknowledging the liabilities on their books, the federal government continues to prosecute other fund managers for basically emulating Congress' approach on entitlements. Is the Congressional approach copyrighted? Because it's hard to understand what San Diego city officials did that differs in any substantial way from what DC has done for decades.

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Posted by Ed Morrissey at September 22, 2006 6:27 AM

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