Escaping fiscal fantasy

If you're in the mood for phony reassurances, read something else, such as campaign literature. What follows is a troubling overview of the financial challenge facing this country.

Using numbers supplied by the Congressional Budget Office, the Concord Coalition estimates that the cost of government medical programs, Social Security and all other entitlements this year will be $1.945 trillion. The payroll taxes designed for social programs will bring in only $878 billion.

The coalition describes itself as "a nonpartisan, grassroots organization advocating generationally responsible fiscal policy." It includes many thoughtful people who don't like the idea of handing future generations an enormous debt, a broken safety net or high, economy-killing taxes.

The group and its allies offer a number of solutions. A presidential commission is also working on the problem. But too few people will pay attention until the financial urgency is more widely acknowledged.

Unfortunately, politicians have discovered it's risky to be candid with voters about the growing gap between what has been promised and what taxpayers are willing to pay for.

When the subject comes up, a large group of otherwise sensible people ask, "So what?" They point out that Congress has borrowed lots of money from payroll taxes over the years and owes Social Security enough to keep it solvent for many years to come - no worries.

There is no dispute that the Social Security money has been borrowed and spent. One way of looking at it is that spending excess payroll taxes helped keep income taxes low. All Congress has to do now is raise income taxes and begin repaying the debt - end of problem.

It's only that easy on paper, not in the real world. This year corporate and individual income taxes will raise just over $1 trillion, not even enough to cover defense spending, domestic spending and interest on the debt.

Paying the Social Security debt and the larger problem of medical entitlements will require a tax increase far larger than the expiration of all the Bush tax cuts would generate. And raising taxes too sharply would slow down or possibly stop economic growth.

Big tax increases are highly unlikely.

Republicans are arguing loudly to keep all the tax levels where they are, and Democrats are promising not to raise taxes on most of us, which gives most voters another reason to think the rising debt is not their problem.

Some Democrats have even blamed Republicans for passing a tax cut that automatically expires in January, and are calling it a "Republican tax increase" that Democrats will most certainly stop.

It's true the expiration was built in to make the long-range budget shortfall appear smaller and the debt less worrisome. But both parties play this fantasy game. The same kind of deception is being used with Medicare.

Congress has enacted a 30 percent cut in what Medicare will pay doctors over the next three years. Almost no one expects that to really happen, yet the cut is used to add 12 years to Medicare's projected solvency, and more important, reassure the public.

But there is nothing reassuring about the total U.S. debt. Including all liabilities that require payment, plus interest owed, plus state, county and city obligations, the total public debt is higher as a percentage of the economy than the debts of the United Kingdom, Spain, Ireland or Portugal, according to the Peter G. Peterson Foundation, quoting data from the International Monetary Fund.

Financial markets worldwide are paying attention, and so should taxpayers.

Representatives of the Concord Coalition and the Peterson Foundation stopped by our offices the other day to discuss potential solutions to the shortfalls facing public health care and Social Security.

Their suggestions are rational and as painless as possible. They include raising the retirement age a little and requiring a small contribution to a mandatory, personal retirement savings account, kept in a place where it would be impossible for Congress to squander. Incentives are needed to keep health-care costs from increasing rapidly.

The steady increase in benefits to the well-off retirees should be slowed. Congress should force some budget discipline on itself. Tax laws could be made more equitable and understandable, which could increase revenue collections and also improve the economy.

But these and a number of other concepts worth debate won't get serious consideration until more of us understand the big picture of the debt and how painfully it could bite us all.