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Where Does the Money Go?
Your Guided Tour to the Federal Budget Crisis
By Scott Bittle and Jean Johnson
PB, 336 pgs. US$16.95
ISBN: 0-0612-4187-3

The iceberg dead ahead

By Steven Martinovich
web posted May 12, 2008

Where Does the Money Go?For all the economic problems – both real and imagined – facing Americans at the moment, there is a looming threat that makes a possible recession look like a mere economic blip. If present demographic and economic trends continue, by 2040 every tax dollar will go to paying the interest on America's debt and funding Social Security and Medicare. Nothing left for defense, discretionary spending or bridges to nowhere.

That sobering bit of reality comes courtesy of the very accessible Where Does the Money Go?: Your Guided Tour to the Federal Budget Crisis an investigation by Scott Bittle and Jean Johnson into Social Security and Medicare's rising costs and their impact on budget considerations. Thanks to the baby boomers, the first of whom reached the early retirement age of 62 this past January, those two programs will require an increasing percentage of tax revenues. When combined with the rising debt and its accompanying costs – unless America chooses to default on its obligations – an untenable situation has been created.

None of this is news of course. Those with knowledge of demographics and the assumptions behind Social Security and Medicare (actually worse off because of rapidly rising medical costs) realized early on what kind of trouble the program could cause. Politicians have had decades to address the issue but have failed every time, and even exacerbated the issue by borrowing from the Social Security surplus with little regard as to how the money will be paid back and introducing a new entitlement, the prescription drug benefit, without understanding the financial ramifications.

According to Bittle and Johnson, the story gets worse…much worse. In order to solve the problem politicians need to figure out a way for the federal budget to run large, continuous surpluses. The colossal gap between the current budget and that oft-dreamed one is the size of an ocean. Even if one were to redline all the programs identified as waste – say the space program, arts funding and foreign aid – barely any headway would be made.

The uncomfortable truth facing Americans, they argue, is that a combination of large tax hikes and radical cuts in spending are needed. To understand the scope, they point out that even the end of George W. Bush's tax cuts in 2010, essentially a tax increase of $1.8 trillion over the following decade, wouldn't balance the budget. Americans must also resign themselves to the fact that mild cuts in Social Security benefits, a simplified tax code, tax hikes and other tough decisions will be necessary.

While Bittle and Johnson's efforts to argue for fiscal sanity are welcome, one can hardly fail to note that they implicitly accept the scope of federal government without asking whether the U.S. is in trouble precisely because of that. They fail to ask whether it is tenable over the long term to provide the myriad of services that the constitution specifically precludes it from doing so, be globally competitive on taxes, and be fiscally responsible given the nature of democratic politics.

Of course, noting that concern may be like belatedly closing the barn door. It's very unlikely that America can grow her economy out of the problem given its size, nor would things like the privatization of Social Security solve the problem for the generation about to retire. Libertarians and conservatives are justified to their anger about the size of government and its fiscal irresponsibility but no one is arguing that the promise made to retirees can be unilaterally broken. Regardless of ideological concerns, the looming crisis exists and it must be dealt with or risk catastrophe both for individuals and the nation collectively.

Where Does the Money Go? is a valuable contribution both as a guide and  warning as to the demographic and financial iceberg that everyone can see but seem intent on ignoring. Pessimists might argue that it's already too late to prevent disaster but Bittle and Johnson can at least be credited with informing Americans and urging them to make some difficult decisions. ESR

Steven Martinovich is a freelance writer in Sudbury, Ontario, Canada.

Buy Where Does the Money Go? at Amazon.com for only $11.53 (32% off)

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