Posted on Sun, Feb. 24, 2008
last updated: February 22, 2008 05:17:12 PM
HOUSTON — Hillary Clinton and Barack Obama champion fiscal responsibility on the campaign trail, but both Democratic presidential hopefuls are promising massive new spending without providing details on how they'd pay for it.
The nation already will face unprecedented fiscal challenges as the baby-boom generation — about 76 million Americans born from 1946 to 1964 — reaches retirement age and begins straining the federal budget as never before.
The federal budget deficit is projected to exceed $400 billion next year. Deficits are paid for by borrowing. The gross federal debt, the sum of what our government owes, is in the neighborhood of $9 trillion.
That means there's less room to borrow to deal with the growing budget pressure as boomers retire.
By 2017, Social Security is expected to begin paying more out in benefits to retirees than it collects from workers. And the number of Medicare recipients will grow from 44 million last year to 58 million over the next decade.
Increased spending on health and welfare programs for the boomers will start to crowd out other federal spending. That's why the two Democrats' mounting campaign promises raise concern among budget experts, who aren't hearing much about where the money would come from.
Clinton has proposed new spending in excess of $200 billion, much of it annual. Obama has surpassed her, promising annual spending of at least $210 billion.
Both have offered expensive plans to get to universal health-care coverage, either through incentives or by government mandate. They've proposed spending big money to help avert housing foreclosures nationwide and to help refinance mortgages for borrowers in trouble.
Both are counting on savings from reducing the U.S. presence in Iraq and rolling back some of President Bush's tax cuts, which are scheduled to expire after 2010, to pay for their new programs. Both expect that expanded use of electronic health records and other advances in medical information technology will defray some of the cost of moving to a universal health-care system.
Neither, however, has proposed a fix for the biggest near-term strain on the federal budget, the alternative minimum tax, or explained how they propose to balance the cost of their campaign promises with the looming expense of the aging baby boomers.
During a speech Tuesday night in Houston, Obama rattled off a list of promises: lower insurance premiums for all families, subsidized premiums for those who can't afford them, tax cuts for Americans who earn less than $75,000, no income tax for retirees who earn less than $50,000, inflation-linked increases in the minimum wage, a $4,000 tuition credit for every college student and unspecified investment in early childhood education, roads, buildings and hospitals.
To pay for it, he cited without specifics higher taxes on the wealthy and corporations, billions of dollars from "polluters" to pay for alternative energy and ending the Iraq war, which is costing an estimated $9 billion a month.
"We can invest that money in rebuilding roads and bridges and hospitals right here in Houston — building schools, laying broadband lines, putting people back to work, employing young men and women in our inner cities, in our rural communities," he said to cheers.
That $9 billion in war spending, however, is largely borrowed money, much of it from China and Japan. If Obama intends to redirect war spending to domestic needs, it still would be deficit spending.
"That's sort of a problem: switching priorities rather than fixing the budget problem," said Robert Bixby, the executive director of the nonpartisan Concord Coalition, a budget watchdog organization. "I couldn't help but think, 'Where is he going to get the money to pay for these things?' "
And the U.S. military can't just pack up, turn off the lights and head home. There'll be a troop presence in Iraq for some years, and the nation will be paying to replace worn equipment and heal the bodies and minds of returning service members for years.
"It is getting a little bit discouraging that promises that are on the wrong side of the ledger . . . are starting to add up. It gets more and more difficult to see how any of the candidates can meet the full portfolio of promises" they've made, said Maya Macguineas, the president of the Committee for a Responsible Federal Budget, a bipartisan group that advocates balanced budgets.
The most obvious problem, which Clinton and Obama have acknowledged — but which neither has addressed — is the unpopular alternative minimum tax.
The AMT wasn't indexed to inflation decades ago, when it was targeted at income levels then considered wealthy, so it now threatens to ensnare millions of Americans families with annual incomes of $75,000 to $200,000.
Abolishing it could cost the Treasury as much as $2 trillion over the next 10 years, just when the government will need more money to pay for programs for boomers. Expanding the AMT, however, could allow it to hit as many as 52 million taxpayers by 2018.
Neither choice is attractive, and because the tax still affects a limited number of Americans, the candidates can duck the issue.
"If you were to repeal the AMT, it would just add to the deficit. It is a serious problem, and none of the candidates is talking about it very seriously," said Len Burman, the director of the Tax Policy Center, a policy-research group run jointly by the centrist Urban Institute and the center-left Brookings Institution.
(Hall reported from Washington.)
McClatchy Newspapers 2008