Marketplace, February 4, 2004
It's hard for most people to get their brains around a $521 billion deficit.Most of us have a hard enough time envisioning a million dollars, let alonea billion -- which is, of course, a thousand million. Try to think about 521housand million dollars -- which is next year's budget deficit -- and yourmind just closes down. A kind of numbness sets in.
Still, I want you to concentrate on a very practical question. Who's goingto lend the government that 521 billion dollars? In point of fact, it'sgoing to be the foreigners and the wealthy Americans who buy treasury bonds.And of course, eventually, we -- you and I and our children -- will have topay that money back. There was a time not long ago in American history whenthe nation's richest citizens helped finance the government by paying a highpercentage of their incomes in taxes. Under President Dwight Eisenhower, forexample, the highest marginal tax rate was 90 percent. Now, America'srichest citizens finance our government primarily by lending it money.
Not to worry, though. The President promises to cut the budget deficit inhalf over the next 5 years. But here's the catch. You've heard of balloonclauses in loan agreements, haven't you? A balloon clause says you start outpaying back a little bit and then your payments increase until you'rewalloped with huge payments later on. The President's budget is like that.The really big-ticket items hit more than five years from now, starting in2009.
Here's one example. The White House admits that the ten-year cost of the newMedicare drug benefit will be more than half a trillion dollars. But what noone's saying is that most of this kicks in after 2009, when the baby boomersbegin retiring and taking advantage of the drug benefit.
Or consider the tax cuts. If they're made permanent, as the President wants,the loss of revenues over the next ten years will be five and a halftrillion dollars. And here's the kicker: Most of this occurs after 2009.That's because the tax cuts start out relatively small and grow.
By the year 2014, according to recent estimates from the CongressionalBudget Office, the President's budget will have added more than 10 trilliondollars to the national debt. And most of this happens after 2009. Socutting the deficit in half over the next five years doesn't mean all thatmuch, even if the promise is kept. Did you hear me? Ten trillion dollars.That's ten thousand billion. Ten trillion dollars is just about the value ofeverything that everyone in this nation produces in an entire year.
Ten trillion dollars - with the biggest balloon clause in the history of theworld.
