NPR (Link) (August 6, 2011)
When Standard & Poor�s reduced the nation�s credit rating from AAA to AA-plus, the United States suffered the first downgrade to its credit rating ever. S&P took this action despite the plan Congress passed this past week to raise the debt limit.
The downgrade, S&P said, �reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government�s medium-term debt dynamics.�
It�s those medium- and long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan�s Council of Economic Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.
�We have all these unofficial debts that are massive compared to the official debt,� Kotlikoff tells David Greene, guest host of weekends on All Things Considered. �We�re focused just on the official debt, so we�re trying to balance the wrong books.�
Kotlikoff explains that America�s �unofficial� payment obligations � like Social Security, Medicare and Medicaid benefits � jack up the debt figure substantially.
Courtesy of Boston University Laurence J. Kotlikoff served as a senior economist on President Ronald Reagan�s Council of Economic Advisers and is a professor of economics at Boston University.
�If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That�s the fiscal gap,� he says. �That�s our true indebtedness.�
We don�t hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.
�Why are these guys thinking about balancing the budget?� he says. �They should try and think about our long-term fiscal problems.�
According to Kotlikoff, one of the biggest fiscal problems Congress should focus on is America�s obligation to make Social Security payments to future generations of the elderly.
�We�ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 � you�re talking about more than $3 trillion a year just to give to a portion of the population,� he says. �That�s an enormous bill that�s overhanging our heads, and Congress isn�t focused on it.�
�We�ve consistently done too little too late, looked too short-term, said the future would take care of itself, we�ll deal with that tomorrow,� he says. �Well, guess what? You can�t keep putting off these problems.�
To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what�s being negotiated right now in Washington.
�What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office�s] numbers say we have an absolutely enormous problem facing us.� �
America ~ Economic Crisis