Suppose there's an alligator in your neighborhood. He's been around for years, and he hangs out at the far end of your street, feeding on chickens that the local children bring him. The alligator's been there so long, and caused such little inconvenience, that he's receded to a small place in your mind; you casually leave food out on the porch, and the backdoor's wide open. But while your thoughts are elsewhere, the alligator is tripling in size. One day those chickens aren't enough, and he sets off for your bedroom.
I'm reduced to spinning metaphors like this by last week's spectacle in Congress. The House passed a corporate tax bill so expensive and so bad that there's only one way to explain it: Congress has just plain forgotten that we are racking up a national debt that may eventually devour us. The subject of budget deficits is so eye-rollingly tedious, and we've survived so cheerfully until now, that nobody cares anymore. Well, think of it this way: The House bill is the equivalent of dunking your head in the alligator's favorite sauce and going to sleep next to him.
The national complacency that makes this behavior possible owes much to Ronald Reagan. The Gipper ran a deficit that peaked at 6 percent of GDP, dwarfing the current deficit of 4 percent or so. Because we survived the Reagan experience, people assume that we'll emerge with no limbs missing from the Bush one, too. As Dick Cheney reportedly declared, "Reagan proved deficits don't matter."
Things have changed since Reagan's time, however. Reagan misbehaved himself when the baby boomers' retirement was still 25 years away and when the 1983 Social Security fix was thought to have stabilized the system for the next three-quarters of a century. Even so, it took a series of tax hikes, a large peace dividend and an unsustainable dot-com bubble to bring the government's books back into balance.
This time around, we confront a different environment. If all the Bush tax cuts were repealed, we would still face a fiscal nightmare. The first baby boomers become eligible for Social Security in 2008, and Social Security spending is set to rise by fully 2 percent of GDP between now and 2040. That problem is minor next to the projected explosion in federal health costs -- Medicare and Medicaid combined -- which will be hit by the combination of the baby bust and medical inflation. If health care spending rises 2.5 percent a year faster than wages, as it has done recently, federal Medicare and Medicaid outlays will grow by a monstrous 14 percent of GDP by 2040, according to Henry Aaron of the Brookings Institution.
That prospect is so extreme -- it implies a doubling in the federal government's share of the economy and a budget deficit five times the one we have now -- that it won't be permitted to happen. But even if only some of this spending growth occurs, a vicious cycle threatens. More spending means more national debt. More debt means more interest payments. More interest payments mean more spending -- adding to the national debt that boosted interest payments in the first place. The Reaganite belief that tax cuts will force smaller government thus misses half of the story. The opposite dynamic exists too: Tax cuts force government spending up on debt service, increasing the burden of government on the private sector.
How will this mess be managed? If health care spending growth could be brought down to just 1 percent above wage growth, we'd still face a federal deficit equal to about 15 percent of GDP in 2040, according to Aaron -- that's more than triple the current one. Undoing all the Bush tax cuts would shrink that deficit by just over 2 percent of GDP; cutting Social Security benefits by one-fifth would shave an additional 1.5 percent or so of GDP; holding defense spending constant in inflation-adjusted dollars (it doesn't cost extra to defend a bigger economy) would save 3 percent of GDP, because of the projected doubling of GDP over the period. Put these three ambitious savings together, and you've fixed less than half of the problem.
In short, the numbers are terrifying. The Bush deficit has already dragged the national savings rate to its lowest point since World War II, creating what Harvard President Lawrence Summers calls "the most serious problem we have faced in the last 50 years" -- and by 2040 the problem is projected to be three to five times bigger. Yet the House has just passed a pork-laden corporate tax cut that will inflate the deficit by more than $200 billion over the next decade. Sen. John Kerry is running a presidential campaign that pays only lip service to this challenge. And George Bush has a vice president who thinks that deficits don't matter.
Sooner than we realize, the alligator will arrive. The chief thing we have to fear is the lack of fear itself, to borrow another line from Larry Summers.