$7,782,816,546,352 debt just an IOU

April 10th 2005 - This week, President George W. Bush went to the Bureau of Public Debt, in Parkersburg, West Virginia, to make the point that there is no Social Security trust fund -- nothing there that can be really counted on. All it is, he said, was a bunch of IOUs. Parkersburg is a river town near the Ohio border, where the Ohio and Little Kanawha Rivers meet, and it is something of an irony that the one presiding over the largest explosion in federal budget deficits would use the Bureau of Public Debt as a backdrop for his plea for solvency in Social Security.

But the bureau may indeed serve as a confluence of many of the serious problems confronting the country over the long term: booming deficits fueled by wildly out-of-balance federal budgets and reckless, sometimes dishonest federal fiscal policy. This week in Washington, the GOP leadership in Congress is continuing its efforts to come up with a budget resolution for the next fiscal year, a blueprint of priorities that will also look out at the next five years. There is some question about whether they can come up with a deal that they can sell to the disparate and increasingly rowdy elements of their party.

The Senate and House plans reveal sharp ideological disagreements, and both plans differ in important ways from the president's budget blueprint. In two of the last three years, Congress was unable to produce a budget resolution, the basic framework of how the federal government will spend and raise money. This year, the GOP has a lot of incentive to pull it off. A budget resolution will give them the opportunity to pass a lot of controversial initiatives [drilling in the Arctic National Wildlife Refuge and making tax cuts permanent] by a simple majority, since budget bills can't be filibustered.

Without the budget resolution, those proposals face Democratic filibuster and will likely die. Regardless of how it is sliced and diced, we are looking at an annual deficit of $368 billion this year and a 10-year projected deficit on $1.35 trillion, according to the Congressional Budget Office. And none of these numbers include the cost of the continuing military operations in Iraq and Afghanistan.

The president's suggestion in Parkersburg, that the $1.7 trillion in Treasury bonds held by the Social Security Administration is "not a pot on money to be drawn on," is a scary proposition. It not only threatens the future of Social Security, but it also goes to the heart of the debate over the long-term health and viability of the national economy. Debt and deficits, colliding with the spiraling costs of entitlements -- Social Security, Medicare, Medicaid, farm subsidies, student loan programs -- may mean we are headed for desolate economic shoals.

Newsweek's Robert Samuelson envisions it as an "and economic and political death spiral."

And when one considers how deficit concerns dominated the politics of the 1990s, it is remarkable how sanguine we are faced with the current situation. Remember that giant sucking sound? It has fallen quiet. The first President Bush agreed to a $500 billion deficit reduction plan that required him to raise taxes, breaking a no-tax pledge that may have cost him his presidency. But he may have made it easier for Bill Clinton to go down the same road two years later, in 1993, when he negotiated another $500 billion deal to reduce the deficit over five years. That solidified Clinton's reputation as a good economic steward and may have saved his presidency later.

And in 1994, it was largely over concern about the size of the federal government that allowed the Republicans to take control of Congress. Deficits politics turned to surplus politics, making it easier for George W. Bush to get his record-level tax cuts.

These days, there is nothing on the table worthy of the name "deficit reduction," but there is growing concern. Conservative GOP budget hawks in the House -- embarrassed by the tarnish that the deficits puts on their reputation as the party of smaller, cheaper, more responsible government -- have been challenging their leadership to more aggressively address the deficit problem. The comptroller general of the General Accounting Office, David Walker, has been saying the solvency problem in Social Security is essentially a small stream headed for a much bigger river.

"First, [Social Security's] financial challenge is a subset of our nation's financial and fiscal challenge," Walker told a House tax panel recently. "Social Security has an estimated unfunded commitment in current dollar terms for the next 75 years of $3.7 trillion. ...That compares with a roughly $43 trillion problem for our country."

So the problem is not just that Social Security may not be able to mail out monthly checks someday in the distant future but that, more perilously, the federal government may find itself so mired in debt that the whole economy just slowly grinds to a halt.

Walker says that without significant reforms we could end up with a federal budget almost entirely committed to interest payments. "[W]e could be doing nothing more than paying interest on federal debt in 2040 if we don't end up engaging in some fundamental reforms of entitlement programs, mandatory spending, discretionary spending and tax policy," he says.

If we assume the Treasury issues are the same as a trust fund, because they are backed by the U.S. government, then the real problem with Social Security is almost a half-century away.

If there is a question about the reliability of those bonds down the road, then you are talking about a larger set of problems: There may come a time when the federal government might not be good for its IOUs.

"Four years ago, the Bush administration inherited a projected 10-year budget surplus of $5.6 trillion," says House Minority Whip Steny Hoyer. "Since then, we have run record deficits of more than $400 billion a year, and Congress has been forced to increase the national debt limit three times. Even worse, the administration and Congress have no real plan to rein in deficits and debt. This threatens our investments in issues important to our communities -- on everything from health care to our national security."

Walker made an interesting point when he recently appeared before the House Ways and Means Committee: The Social Security Trust Fund has IOUs because the Federal government spends, every year, hundreds of million of surplus payroll taxes collected for Social Security. These days, that means the federal deficit looks smaller that it actually is. In 2008, those surpluses begin to dwindle.

"And since Congress has, for a number of years, spent every dime of the surplus on other operating expenses," said Walker, "that means it will increasingly put additional pressure on the balance of the federal budget starting in 2008."

That's about the time an almost-62-year-old George W. Bush heads back to Texas to begin his retirement and, sooner or later, to start cashing those Social Security checks.

The day Bush was sworn into office in 2001, the national debt was $5.7 trillion, and there was a surplus. On the day he showed up in Parkersburg, it had climbed to $7,782,816,546,352.29. That is seven trillion, seven hundred and eighty-two billion, eight hundred and sixteen million, five hundred and forty-six thousand, three hundred and fifty-two dollars, and twenty-nine cents.

But it's just an IOU.