You’ve heard plenty about the fiscal cliff. But little attention has been paid to what’s beyond it.
What’s beyond it is another higher, steeper cliff.
The federal debt now exceeds $16 trillion and Congress will need to vote shortly to raise the debt ceiling in order to keep the government operating. We’re running an annual budget deficit exceeding $1 trillion, so the debt will only get higher.
The longer we try to maintain the status quo, the more difficult it will be to bring the debt back in line. We’re reaching the point where every dollar in the federal budget will be needed just to service our debt. That means your taxes will no longer go toward building new highways, helping the poor or protecting the United States. They will be needed to pay off the enormous debt that the President and Congress have incurred.
The only way to keep the government functioning under those circumstances, even if we cut spending and raise taxes, will be to incur more debt.
The bigger issue, though, is the unfunded liabilities from government entitlement programs. According to The Wall Street Journal, we have already incurred $86.8 trillion in liabilities for Medicare, Social Security and future retirement benefits for federal employees. If we could freeze time and incur no further liabilities, we would still need to pay out $86.8 trillion.
Both Medicare and Social Security are “pay as you go” systems. As baby boomers retire, payment for these two entitlements will come from those who are still in the workforce. As they are a much smaller population than the baby boomer generation, they will need to pay more or both Medicare and Social Security will collapse.
But how much more will be needed? A commentary in The Wall Street Journal, “Why $16 Trillion Only Hints at the True U.S. Debt,” includes the following glum assessment:
“When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.
“Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.
“In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn’t be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities.”