Focusing on the government shutdown is like rearranging the deck chairs on the Titanic while drawing closer to the iceberg.
The iceberg in this case is the massive government debt that will be made worse by the implementation of the Affordable Care Act.
Later this month, Congress will need to lift the debt ceiling from its current $16.7 trillion to keep the government solvent and enable the U.S. to continue paying its massive bills. In the meantime, as a result of the negotiations that led to sequestration, Congress had until the end of September (the end of the fiscal year) to reach a spending agreement.
It didn’t, of course, and now the government has shut down. But what does the shutdown really mean?
The shutdown affects only “nonessential” services. That means 85% of government services are still being funded and 63% of federal employees are still working. Mail is being delivered, military personnel are still keeping us safe, and payments are still being made for Medicare, Medicaid, Social Security, the Supplemental Nutrition Assistance Program (SNAP) and the countless other programs that we can’t afford. Amtrak trains will continue running, so if your train is late, don’t blame it on the shutdown.
Too bad for those who were planning to visit a national park this weekend, but most of us won’t be greatly affected by the shutdown – at least not in the short-term.
So the government shutdown isn’t the real story here, although it’s being played for great dramatic effect by President Obama, many members of Congress and the media.
Raising the Debt Ceiling
The bigger concern is the debt ceiling and the growing U.S. debt. The federal government will run out of money somewhere between October 17 and November 1, unless Congress authorizes the government to go further in debt.
Some members of Congress will seek spending restraint in return for raising the debt ceiling. Good luck with that. The near certainty of even more contentious “negotiating” is already being reflected in the yield curve for Treasury bills (see chart). If rating agencies weren’t afraid of being sued by the government, they might even drop the U.S. credit rating.
President Obama and many members of Congress have made it clear that they will continue spending money we don’t have. There will be no negotiation.
Do you feel like you’ve seen this movie before?
There’s been the fiscal cliff and sequestration; the “super committee,” whose main purpose seemed to be to create a proposal that would be ignored, and there was the last raising of the debt ceiling. Meanwhile, the country continues to operate without a budget, as even President Obama’s own party wouldn’t approve the $3.77 trillion budget he proposed.
Sequestration has not solved the country’s debt problems, but it has at least slowed the rate of spending growth.
According to Wikipedia, “The reductions in spending authority are approximately $85.4 billion (versus $42 billion in actual cash outlays) during fiscal year 2013, with similar cuts for years 2014 through 2021. However, the Congressional Budget Office estimated that the total federal outlays will continue to increase even with the sequester by an average of $238.6 billion per year during the next decade, although at a somewhat lesser rate.”
Having already been blamed for shutting down the government, Republicans will have little leverage in negotiating further spending cuts. In fact, some in Congress are trying to undo sequestration cuts.
Meanwhile, federal debt will continue to push past $17 trillion, increasing as a share of gross domestic product (GDP), and ensuring that our standard of living will be lowered for generations to come.
Unfunded Liabilities
Even worse than the federal debt, though, is the unfunded liabilities we face. As we noted in a previous post:
“According to The Wall Street Journal, we have already incurred $86.8 trillion in liabilities for Medicare, Social Security and future retirement benefits for federal employees. If we could freeze time and incur no further liabilities, we would still need to pay out $86.8 trillion. …
“A commentary in The Wall Street Journal, “Why $16 Trillion Only Hints at the True U.S. Debt,” includes the following glum assessment:
“ ‘When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual cash deficit.
‘Nothing like that $8 trillion amount is available for the IRS to target. According to the most recent tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the U.S. had total income for tax purposes of $1.6 trillion. That comes to $6.7 trillion available to tax from these individuals and corporations under existing tax laws.
‘In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn’t be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities.’ ”
You can’t spend your way to prosperity, but that’s not stopping President Obama and Congress from trying.