Math vs. Demagoguery

by Tom Licata 

Tom Licata

Arithmetic reveals. Demagoguery conceals. And never the twain shall meet.

Nowhere was this more evident than in the two Burlington Free Press op-ed pieces of July 31 (“Unfunded wars root of spending problem”; “Does TEA Party represent most selfish generation?”). Each of these articles uses demagoguery or appeals to the emotions and prejudices of the populace to claim that our “Unfunded wars [are the] root of [our] spending problem” as well as the “Bush tax cuts” for the rich. Arithmetic reveals otherwise.

Our national debt of nearly $15 trillion is but the tip of the ice berg; below this water’s surface of “unfunded wars” and “Bush tax cuts” for the rich conceals disturbing data, measured in something defined as our “fiscal gap.”

Our “fiscal gap” measures (in net present value terms) the difference between projected U.S. federal tax revenues (primarily derived from personal income, corporate and payroll taxes) versus projected U.S. federal expenditures or promises (primarily composed of Medicare, Social Security, Medicaid and other miscellaneous mandatory expenditures). Mandatory expenditures, which account for approximately 66% of our nearly $4 trillion U.S. annual budget, are expenditures authorized by law and are considered on “autopilot.” That is, these expenditures bypass the routine annual Congressional appropriation’s budgeting process. Whatever their costs, we pay. It’s that simple.

In July of 2010, the International Monetary Fund (IMF) released its annual review of U.S. economic policy. Section 6 of the July 2010 Selected Issues Paper stated this: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It went on: “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

Think about that.

2010’s total annual federal tax revenues were about 14.9% of U.S. Gross Domestic Product (GDP) or, totaling just over $2 trillion.

In other words, the IMF is telling the U.S. that in order to meet all its future promises and obligations of Medicare, Social Security, Medicaid, etc.; it would have to DOUBLE all taxes. Permanently! Not temporally. That is, top marginal personal income and corporate tax rates (including state and local) would exceed 80%; payroll taxes for employers and employees would balloon to 30%, etc. And as Congress currently wages war over cutting some $2 trillion over 10 years, this IMF report is telling us that what is needed is some $20 trillion over 10 years.

In essence, the IMF is telling the world that the U.S. is essentially bankrupt, as implementing these kind of confiscatory taxes would impoverish and decimate our economy.

And in another revealing report from the arithmetic of the 2011Trustees of Social Security and Medicare, our entitlement’s net present value unfunded shortfall sums to $61.6 trillion; this from former U.S. Comptroller General David Walker, in a recent CNBC interview as well as from a U.S.A TODAY analysis (“U.S. funding for future promises lags by trillions,” June 13).

In other words, we would have to have $61.6 trillion on-hand, today and invested, in order to have enough money to pay all future promises and obligations of Medicare, Social Security and Medicaid for the next 75 years.

In comparison, our “unfunded wars” in Iraq and Afghanistan are non-recurring and ending events and depending whose estimates you use, their costs range from roughly $1 trillion to $4 trillion. As well, the “Bush tax cuts” for the rich, over a 10 year period are estimated to “cost” approximately $1 trillion.

It should be very clear that the arithmetic our nation faces poses an existential threat to our standard of living as we know it. The kind of demagoguery we witness from our political class and often repeated from our citizenry cannot and will not conceal these truths. Should our politicians continue their demagoguery, denial and avoidance to these threats, the kind of pain, impoverishment and social unrest demonstrated in Greece and elsewhere throughout the world, are destine to wash upon our shores.