US Marches Toward A Financial Disaster Worse Than Anyone Thinks

The Advocate

By Herb Denenberg, The Bulletin

Thursday, April 23, 2009

This column will show you that:

• Barack Obama’s financial disaster will be much worse than you probably think. That’s because there is another even bigger financial disaster lurking ahead and that will start to come into play in a few short years.

• There are alternatives to the Obama-style socialist health-care reforms. The Obama reform that will compound our financial crisis and create a health-care crisis

• You can find better thinking and analysis on our major public policy questions in a free publication than you can in many of the expensive periodicals and newspapers you may be subscribing to.

The Metrics Of Our Financial Disaster

Before I get into the metrics of disaster, let me credit the source of what follows — an article by Dr. John C Goodman, a fellow at the National Center for Policy Analysis, titled “A Prescription for American Health Care,” that appeared in the March 2009 issue of Imprimis, a free publication of Hillsdale College with more than 1,700,000 monthly readers. (For a free subscription, e-mail imprimus@hillsdale

college.edu or call 800-437-2268.) I find more wisdom in one issue of this publication than in 10 years of most of The New York Times and The Philadelphia Inquirer rolled into one.

Mr. Goodman bowls you over with this opening statement: “When you get through the economic time we’re in right now, we’re going to be confronted with an even bigger problem.”

There are 78 million baby boomers now starting to sign up for early retirement under Social Security and, in two years, they will start signing up for Medicare. The problem is that the federal government has put no money aside to pay these obligations and appears to be the inspiration for Bernie Madoff’s Ponzi scheme. The government will make Mr. Madoff look like a two-bit chiseler by comparison.

The Trustees of Social Security estimate a current unfunded liability of $100 trillion in 2009. To handle the payments will require either a crushing tax increase or a crushing cutback in benefits.

If that doesn’t knock you over — even in the age of Obama, $100 trillion is still a lot of money — it gets worse. The unfunded liability of Medicare is six times larger in terms of unfunded obligations than that of Social Security. So if you’re keeping score, that’s already $700 trillion in unfunded liability. That’s more than 45 times the size of our entire economy.

If you think this is the sky-is-falling blues for a far out time, think again. In 2012, Social Security and Medicare will need one of every 10 general income tax dollars to cover their combined deficits. By 2020, that goes to one of every four general income tax dollars. And by 2030, the midpoint of the baby boomer avalanche, it will take one of every two income tax dollars.

Don’t relax yet. That analysis doesn’t even include Medicaid, which is almost as large a problem as Medicare. Even the Congressional Budget Office, controlled by the Democrats in Congress, says that by mid-century, Medicare and Medicaid are going to crowd out everything else the government does. In other words, the government will only be able to pay for Medicare and Medicaid, and nothing else such as defense, energy, education, etc.

If the federal government wants to continue to do what it is doing now, that would mean, according to the Congressional Budget Office, that a middle-income family would have to pay two-thirds of its income in taxes.

If you think it can’t get worse, it does. Private sector employer-funded pension plans are not fully funded, but are backed by a federal insurance scheme, which is also not fully funded. This generates a potential taxpayer liability of between $500 billion and $1 trillion.

On top of that, almost none of post-retirement health-care promises of private employers are funded. And state and local post-retirement health funds are also not funded. If you want to know what that means, some California localities have already declared bankruptcy because of employee retirement plans, and the first of the baby boomers is only 63 years old.

Full story HERE