By Philips Klein
At the time, Roosevelt claimed that the sweeping program would, “act as a protection to future administrations against the necessity of going deeply into debt to furnish relief to the needy.”
He was right about the “cornerstone” part, as both parties built on the program in the decades that followed. In 1965, President Lyndon Johnson brought us Medicare and Medicaid.
In 2003, President George W. Bush and a Republican Congress added prescription drug coverage for seniors. And just last year, President Obama pushed a national health care law through Congress.
But Roosevelt was dead wrong that the program would help the nation avoid deep debt. Social Security and the entitlement programs that followed its legacy of seeking to protect citizens from the “hazards and vicissitudes of life,” turned out to be fiscal disasters.
With health care costs rising and the population aging, America’s welfare-state obligations are bringing the country to its financial knees. If left unchecked, the growing debt burden will not only trigger runaway inflation and stifling taxes, but it will also threaten national security.
Spending on Social Security, Medicare, Medicaid and Obamacare alone currently account for 46 percent — or nearly half of — federal spending, excluding interest payments. Over the next 25 years, that percentage will explode to 66 percent, or close to two-thirds, according to the Congressional Budget Office..
Numbers associated with the nation’s debt crisis are almost too staggering to comprehend. Last month, total U.S. debt surpassed $15 trillion. But a recent analysis by Boston University economics professor Laurence Kotlikoff found that when long-term entitlement obligations are considered, the true fiscal gap is $211 trillion.
Greece, with an economy 1/50th the size of the U.S., is threatening the economic standing of the rest of Europe because of its growing debt burden, which hit 143 percent of its gross domestic product in 2010.
The U.S. is on pace to match that dubious distinction in under 20 years, according to the CBO, and to soar to 716 percent by 2080. Sustaining such debt would require raising marginal tax rates to as high as 88 percent, according to the CBO.
Of course, that’s just on paper. The CBO warns that, “Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion. Revenues would probably fall significantly short of the amount needed to finance the growth of spending; therefore, tax rates at such levels would not be feasible.”
While it’s easy to dismiss such projections decades out into the future, the problem is that bond investors consider long-term projections when making their purchasing decisions.
If the U.S. doesn’t get its fiscal house in order in the near future, bond markets will begin to lose faith in America’s ability to repay its debts, creating a crisis a lot sooner than expected.
Just this past August, Standard and Poor’s downgraded U.S. debt for the first time in American history. Once bond holders abandon America, the nation will either have to dramatically cut spending, raise taxes steeply, or print money to buy up the debt — which would trigger massive inflation.
The growing debt burden is also a national security risk, because it reduces America’s leverage against nation’s such as China, which owns a substantial amount of U.S. debt. And the fiscal crunch will force devastating cuts to our military — far beyond anything contemplated today.
Thus, the conclusion is inescapable that, if America doesn’t end the welfare state as we have known it since 1935, it will end America as we know it today.
This article appeared original on the Washington Examiner on Monday 22nd.
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