By Lori Montgomery
Washington Post Staff Writer
Thursday, June 21, 2007
TAMPA -- The numbers make Joseph Farrell's head swim. Billions and trillions of dollars, numbers too immense to comprehend. But the central message, delivered by a band of Washington budget experts traveling the country to raise an alarm about the nation's financial picture, hits him like a whack on the head.
"I knew there was a problem, but I didn't realize it was this bad," Farrell, 25, marveled after a recent presentation at the University of South Florida, from which he is to graduate in August. "I didn't realize there was no solution in sight. My taxes are going to be huge."
The problem is the skyrocketing cost of government health-care and retirement benefits. By most estimates, they will break the national bank as the baby boom generation retires. If projections hold, Farrell and his contemporaries could face a near-doubling of their income taxes over the next 35 years just to care for the burgeoning ranks of older Americans.
Fed up with Washington's paralysis on the issue, the government's chief auditor, David M. Walker, along with analysts from three ideologically diverse think tanks, is venturing beyond the Beltway to explain the issue to voters. Their goal: to generate enough grass-roots anger to force the 2008 presidential candidates to discuss the problem.
Their unusual road show is called the Fiscal Wake-Up Tour, and it is playing to college campuses, Rotary Clubs and newspaper editorial boards from Seattle to West Palm Beach, Fla. The tour has made multiple stops in early primary and campaign battleground states including Iowa, New Hampshire, California and Florida, with more to come.
So far, no candidate in either party has offered a plan to alter the budget-busting trajectory of Medicare, Medicaid and Social Security spending. Leading Democrats have shied from promises to balance the budget even in the short term, a comparatively easy task. And leading Republicans are vowing never to raise taxes, a pledge that, if honored, would make closing the budget gap difficult or impossible.
But the Wake-Up troupe is undeterred. Its members say that the primaries are all about party politics and easy answers, and that the serious debate will start next year when the field dwindles to two.
"It's critically important that this becomes one of the major issues in the general election campaign," said Walker, the nation's comptroller general.
The tour is organized by the Concord Coalition, a Virginia nonprofit group formed in 1992 to promote responsible budgeting. The group is collaborating with the liberal Brookings Institution and the conservative Heritage Foundation.
Walker is the tour's rock star, profiled on "60 Minutes" and interviewed by faux-pundit Stephen Colbert. A former Arthur Andersen accountant, Walker heads the Government Accountability Office, a legislative agency that aims to improve government performance through audits and investigations.
With six years to go on a 15-year term, Walker has the stature and independence to say what he wants. For the past five years, since Congress ignored his advice and created a hugely expensive prescription-drug program for Medicare beneficiaries, Walker has put the looming fiscal crisis at the top of his agenda.
"People are on the beach having a beach party while you can see a tsunami of spending on the horizon. And you've got people saying, 'party on,' " Walker said in an interview. "We're headed for very, very rough seas, like we've never seen before in this country."
With his Southern-fried accent and flair for apocalyptic turns of phrase, Walker's job on the tour is to breathe life into the dry details of the federal budget. By his reckoning, the heart of the problem is this: The annual budget deficit, which is the difference between revenue and spending, was $248 billion in fiscal 2006, down from a high of $413 billion in 2004. It is expected to decrease further in the fiscal year that ends in October, and both the White House and Congress are projecting a balanced budget by 2012.
But the numbers hide massive cracks in the budget's structure. First, they rely on borrowing from the Social Security trust fund, which today collects more in taxes than it needs to pay benefits. As the baby boomers retire, demands on the trust fund will grow, and the yearly surplus will likely disappear by 2017. Without that surplus, last year's deficit would have been $434 billion. Eventually, the money the government has borrowed from Social Security will be needed to pay retiree benefits, and it will have to come out of general revenues.
Which gets to the larger problem: More than half the federal budget is on autopilot, eaten up by interest payments and entitlement programs that provide benefits to anyone who qualifies. The biggest entitlements are Social Security, Medicare and Medicaid, which together account for about 40 percent of federal spending. Interest on the national debt accounts for another 9 percent and is the fastest-growing budget category at $227 billion, or nearly twice what was spent last year on the war in Iraq.
Congress created the big entitlement programs, and it can change or limit them at any time. But the programs are so popular that in practice, Congress rarely tinkers. Unlike such other government functions as education and transportation, known as discretionary programs, entitlement spending grows more or less automatically. That makes it easy to project spending, and the outlook is sobering.
Assuming the government can repay the trillions of dollars it has borrowed from Social Security, that program would remain solvent through 2041. After that, benefits would have to be cut by at least 25 percent unless taxes are increased. Medicare and Medicaid are in worse shape because, in addition to serving a rising number of elderly people, they cover services whose costs are rising faster than inflation.
All told, the cost of the three programs exceeds projected revenue by more than $50 trillion over the next 75 years, by the GAO's latest estimate. "That's 95 percent of the net worth of every American," Walker told a hushed crowd in Tampa. "And these numbers are going up every second of every minute of every day."
Walker was followed by Jason Furman, a Brookings fellow who explained the risks of deficit spending, and Alison A. Fraser, director of Heritage economic policy, who bored directly into common misconceptions about the federal budget.
Using a computer model that let her subtract individual items, Fraser demonstrated that neither foreign aid nor pork-barrel allocations nor the war in Iraq are driving the nation's money problems. The projected cost of entitlements is so enormous that eliminating the entire Defense Department would barely make a dent.
"What we're saying is the numbers don't add up," Robert L. Bixby, the Concord Coalition's executive director, told the crowd of more than 200, a mixture of students, retirees, advocates for the elderly and activists with connections to Sen. Mel Martinez (R-Fla.), the event's sponsor.
"The current fiscal policy over the long term is unsustainable," Bixby said. "There aren't quick-fix solutions to this like cutting waste, fraud and abuse or relying on robust economic growth to do all the heavy lifting. . . . We all agree that finding solutions is going to require bipartisan cooperation and a willingness to consider all options."
What are the options? Tour members have some thoughts: Balance the budget soon, while it is still relatively easy to do. Overhaul the tax system. Raise the retirement age. Rein in overall health-care costs. And trim Social Security and Medicare benefits for the wealthy, or charge them more to participate.
"We need to rethink the concept of social insurance regardless of need," Fraser said. "I would like to reserve our resources and target them to those who need them the most."
Though few on either side of the aisle in Washington would argue with the tour's broad conclusions, an increasingly vocal minority in the Democratic Party questions the wisdom of focusing on the budget when the main source of the problem, in their view, is the inefficient delivery of health care. James K. Galbraith Jr., a professor at the LBJ School of Public Affairs at the University of Texas at Austin, argues that deficits are not particularly dangerous, that health-care reform should take precedence over balancing the budget and that the Wake Up Tour is "strongly biased toward cutting services and against fees or taxes."
"These people are taking a sledgehammer to an existing system which has already got serious problems. And what they would do to it would make the health condition of the elderly and the poor much worse," Galbraith said.
Among the leading Democratic presidential contenders, John Edwards, a former U.S. senator, hews closest to this view, saying he would raise taxes to provide health coverage to the 45 million Americans who have none and would not make deficit reduction a top priority. Sens. Barack Obama of Illinois and Hillary Rodham Clinton of New York are also campaigning on health-care reform, though both say they would place more emphasis on controlling the deficit.
The leading Republicans all vow to balance the budget, but say they would not raise taxes. Sen. John McCain of Arizona, the only candidate in either party to focus serious attention on the issue with a recent speech in Memphis, would not consider raising taxes, economic adviser Douglas Holtz-Eakin said.
The Wake-Up folks don't like to see candidates take any potential solution off the table, saying that makes a compromise more difficult to broker. But they soldier on. They've adopted Paul Revere, the Revolutionary War hero who raised a timely alarm, as a sort of mascot.
"We are issuing a warning," Bixby said. "And we have full faith that the American people and their elected officials, if apprised of the fact and the consequences to future generations, can suspend partisanship and self-interest long enough to engage in a dialogue about meaningful solutions."