The federal government is doing a risky balancing act with the national deficit that is unsustainable, said a group of fiscal policy experts during a meeting with the Post-Gazette editorial board yesterday as part of an economic "wake-up call" tour across the country.
"The premise of our tour is [that] the numbers we are looking at for the future of the federal budget don't add up," said Robert Bixby, executive director of The Concord Coalition, a bipartisan organization that advocates responsible fiscal policy. "We are not facing that as a nation."
As baby boomers continue to retire in the coming years, it will signal a permanent shift to an older population and a permanent rise in the cost of entitlement programs such as Social Security, Medicare and Medicaid, which already account for 42 percent of the federal budget.
Members of the Concord Coalition say there is no plan to pay for the government's rising commitments, other than running up the national debt.
"We are increasingly relying on foreign lenders to finance our debt," said David M. Walker, who served as U.S. Comptroller General from 1998 to 2008. "We have five to 10 years to demonstrate we are serious about funding our current imbalance before foreign lenders send us a strong message of lower confidence [in our ability to do so.]"
The growing federal debt currently stands at $9.3 trillion.
Mr. Bixby and Mr. Walker were part of a four-member panel, which also included Alice Rivlin, a senior fellow at The Brookings Institution, and Brian Riedl, a senior policy analyst at The Heritage Foundation.
The group also held a round table discussion yesterday at the University of Pittsburgh that was moderated by Paul H. O'Neill, former secretary of the U.S. Treasury and former chairman and chief executive of Alcoa.
The "wake-up call" tour, which was kicked off in September 2005, so far has visited 40 cities in 28 states.
The panelists say that over the next 25 years, the number of Americans aged 65 and up is expected to nearly double from 12 percent of the population to 20 percent. The working-age population, however, will grow only 10 percent during this time, shrinking from 60 percent of the population to 55 percent.
The ratio of workers paying into Social Security relative to the number of beneficiaries will drop by roughly one-third.
"We can't tax our way out of this," Mr. Riedl said.
The panelist predict an unprecedented fiscal crisis, but stopped short of saying when it will hit.
By the time it does, though, they predict the economy will be reeling from an enormous amount of debt that likely will lead to painful benefits cuts and steep tax increases.
There is a pervasive idea that the expensive war in Iraq is what's causing the budget crisis, but the panelists say the true culprit is entitlement programs. The leading presidential candidates have so far avoided addressing the issue, they say, because the solutions will involve sacrifices that will be politically unpopular to say the least.
"I think a number of congressmen understand this intellectually but just aren't stepping up to do anything politically," Ms. Rivlin said.
The dramatic decline of the U.S. dollar against other major currencies is in many ways a judgment on America's future viability, according to the panelists. Foreign governments and investors are less willing to buy U.S. government bonds. The panelists said they were surprised it did not occur sooner in light of our growing deficit.
"The inevitable fall of the dollar from running deficits has finally happened," Ms. Rivlin said. "What was keeping the dollar strong was the large inflow of capital into the U.S., and that has slowed."
Tim Grant can be reached at email@example.com or 412-263-1591.