When Standard &
Poor's reduced the U.S.’s credit rating from AAA to AA-plus, it was the first
time the U.S. ever suffered a downgrade to its credit rating. The S&P
took this action despite the plan Congress passed last week to raise the debt
limit.
The downgrade, S&P
said, "reflects our opinion that the fiscal consolidation plan that
Congress and the administration recently agreed to falls short of what, in our
view, would be necessary to stabilize the government's medium-term debt
dynamics."
It's those medium- and
long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President
Reagan's Council of Economic Advisers. He says the national debt, which the
U.S. Treasury has accounted at about $14 trillion, is just the tip of the
iceberg.
"We have all these
unofficial debts that are massive compared to the official debt," Kotlikoff tells David Greene, guest host of weekends on
All Things Considered. "We're focused just on the official debt, so
we're trying to balance the wrong books."
Kotlikoff explains that America's
"unofficial" payment obligations — like Social Security, Medicare
and Medicaid benefits — jack up the debt figure substantially.
Laurence J. Kotlikoff served as a senior economist on President
Ronald Reagan's Council of Economic Advisers and is a professor of
economics at Boston University
"If you add up all
the promises that have been made for spending obligations, including defense
expenditures, and you subtract all the taxes that we expect to collect, the
difference is $211 trillion. That's the fiscal gap," he says.
"That's our true indebtedness."
We don't hear more about
this enormous number, Kotlikoff says, because
politicians have chosen their language carefully to keep most of the problem
off the books.
"Why are these guys
thinking about balancing the budget?" he says. "They should try and
think about our long-term fiscal problems."
According to Kotlikoff, one of the biggest fiscal problems Congress
should focus on is America's obligation to make Social Security payments to
future generations of the elderly.
"We've got 78
million baby boomers who are poised to collect, in
about 15 to 20 years, about $40,000 per person. Multiply 78 million by
$40,000 — you're talking about more than $3 trillion a year just to give to a
portion of the population," he says. "That's an enormous bill
that's overhanging our heads, and Congress isn't focused on it."
"We've consistently
done too little too late, looked too short-term, said the future would take
care of itself, we'll deal with that tomorrow," he says. "Well,
guess what? You can't keep putting off these problems."
To eliminate the fiscal
gap, Kotlikoff says, the U.S. would have to have
tax increases and spending reductions far beyond what's being negotiated
right now in Washington.
"What you have to do
is either immediately and permanently raise taxes by about two-thirds, or
immediately and permanently cut every dollar of spending by 40 percent
forever. The [Congressional Budget Office's] numbers say we have an
absolutely enormous problem facing us."
