WASHINGTON, Dec. 7 (UPI) -- With tax increases ruled out under the current administration, as it continues to press instead for still more tax cuts, one thing is certain: the U.S. government is running out of money to pay for everything it has committed to.
So perhaps it's not surprising that the White House proposed late Monday to borrow more money to pay for the process of privatizing social security retirement accounts for younger workers, which is expected to cost the federal government anywhere between $1 trillion and $2 trillion over the next decade.
White House spokesman Scott McClellan was quick to point out that without any changes in the current system, and keeping the social security system as is will cost taxpayers anywhere from $10 trillion upward during the same time as the number of people qualifying for government payouts balloon. A government report released earlier this year found that the program under the current plan will start running a deficit by 2014 and be depleted by 2043.
"The cost is $10 trillion if we do nothing. So, what you're talking about would be a significant savings over those costs. The social security system is unsustainable. It needs to be fixed," McClellan said at a press briefing.
There is no doubt that the current social security system cannot continue in its present form, as the number of workers that support retirees continues to decrease. Indeed, in seeking a second term in office, President Bush repeatedly said that pressing for a fundamental change in the social security system will be one of his top priorities over the next four years.
Details of Bush's pension payment reform plan have yet to be unveiled, but many Democrats have opposed the White House's basic outline to privatize social security partially, as they believe the change will put those elderly already receiving paychecks at risk from getting full payments.
Then there are those who are skeptical about Bush's plan being able to provide a solution to the very real looming social security crisis, simply by allowing younger workers to put aside a small percentage of their potential retirement savings into private accounts rather than paying it into the federal system.
For economists, however, the problem is less the debate over privatizing or not privatizing the retirement pay system, but rather how the government will finance those payments. And according to many economists, the government is already heavily indebted, and that it will be increasingly difficult for the United States to meet its debt obligations.
Moreover, increasing its debt level is likely to put the U.S. economy more vulnerable to the swings in international markets, as much of the future financing of U.S. debt is likely to come from foreign investors.
There is no doubt that both the U.S. budget as well as trade deficits have continued to soar under the Bush administration. While the debate in the early months of the Republicans coming to power had been about what to do with the fiscal surplus, the discussions now are about how to balance the books back into the black, if not at least to stop the deficit from climbing still higher.
Moreover, while the longer-term plan of the latest Bush proposal for social security is to save social security, the White House has made clear that in the near-term, changing the system will cost the government and that money is likely to be raised by issuing more Treasury bonds.
Yet as spending on homeland security as well as military expenditure continue to increase, the White House was forced this year to ask Congress to raise the statutory debt ceiling which reached its limit of $7.4 trillion in early October.
Since then, the debt ceiling was raised has been raised by another $800 billion, but the change in social security system could require the White House for ask for an even higher ceiling to be set. Meanwhile, the federal budget deficit reached a record $412 billion in the latest fiscal year ended Sept. 30, and the Congressional Budget Ofice projects $2.3 trillion in accumulated deficits over the next decade, without incorporating the debt burden by the change in social security as proposed by the Bush administration.
While the preciseness of those estimates can be debated, there remains the question, nevertheless as to when and if the United States can pay back all the money it has been borrowing, and will likely continue to borrow.
A Council of Economic Advisers report last month found that tapping into the bond market to pay for the partial privatization of social security would increase the United States' debt-to-GDP ratio by 23.6 percentage points by 2036, thereby increasing public debt by $4.7 trillion. But proponents of the privatization plan point out that those government bonds would be repaid 20 years after that, thereby reducing the liability created by social security and reduce the tax burden in the longer-term.
