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An Unsustainable Fiscal Path
The long-term outlook for the U.S. is distressing, even before adding in nationalized health care.


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Phil Kerpen

If the federal government were a bank it would have been nationalized by now. Its balance sheet is a mess, and its long-term outlook is so bleak that we have to seriously consider the possibility that the U.S. government will default on its obligations sometime down the road.

This year, the federal deficit crossed the shocking psychological barrier of $1 trillion. That would be a record – by far — for a full year of federal borrowing, but it happened in just six months. Yet amazingly, the top legislative priority of the White House and the Democrats in Congress is a health-care bill that would accelerate this national fiscal train wreck.

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Earlier this month, the Congressional Budget Office revealed that total federal spending — which for 50 years has averaged about 18 percent of GDP and in recent years has hovered around 20 percent of GDP — is projected to reach 27.4 percent of GDP in 2009. Much of that run-up is related to “temporary” bailouts and stimulus. Indeed, the CBO assumes that spending will decline in the short-term. But then the costs of Social Security, Medicare, and Medicaid will start to escalate dramatically, lifting spending and debt into the stratosphere.

According to the CBO’s projections, total federal spending will hit 33.9 percent of GDP by 2035, 42.2 percent of GDP by 2050, and a doomsday-like 64.7 percent of GDP by 2080. In other words, government spending in 70 years could equal two-thirds of everything produced in the U.S. annually, a literal stranglehold on the economy that will crush private-sector incentives to work, save, and invest.

The U.S. federal government is clearly on an unsustainable fiscal path, and that’s before adding in the massive new costs of a nationalized health-care system. The trustees of Social Security estimate that the program’s unfunded liability is today $15.1 trillion, which is nearly 50 percent more than the official national debt ($11.6 trillion). Medicare’s unfunded liability, according to its trustees, clocks in at an astonishing $36.4 trillion.

The Government Accountability Office uses a slightly different methodology when it estimates the federal fiscal hole to be approximately $62.9 trillion. Yet almost any way you slice it, the federal debt burden — including existing entitlement obligations — is now more than $200,000 for every man, woman, and child in the United States. And the price tag is going up.

President Obama argues that out-of-control health-care costs need to be brought in line, and he’s right. But every health reform that has been proposed by congressional Democrats would cause costs to skyrocket even faster.

The Democrats plan to make more health-care services available to millions of Americans without any meaningful cost-sharing, increasing both utilization and the size of the bill that will fall to taxpayers. The Democrats would expand Medicaid, exacerbating that program’s infamous out-of-control costs. This expansion could very well break the states — and the federal government, too, if it decides to bail the states out.

The Democrats would mandate that insurance companies cover pre-existing conditions, and would prohibit insurance companies from risk-adjusting their premiums, forcing the healthy to pay higher premiums to subsidize care for the chronically ill. The Democrats also would hide the escalating costs of premiums from voters by subsidizing them heavily with tax revenues.

Medicare cuts represent the only real savings in the Democratic proposals. Everything else, according to Obama health guru Ezekiel Emanuel, is “merely ‘lipstick’ cost control, more for show and public relations than for true change.” But program cuts to Medicare without structural reform mean draconian reductions in health-care availability for the elderly — meaning these cuts will almost certainly yield to political reality and never materialize.

Even CBO director Doug Elmendorf stated plainly that Democratic reform legislation “significantly expands the federal responsibility for health-care costs.” Unfortunately, the CBO apparently can be manipulated to advance legislative goals. It recently became known that the CBO revised its estimate of the economic impact of cap-and-trade legislation now before Congress, lowering the cost from $1,600 per family to just $175. Presumably, as political pressure mounts, it also could reverse course on the price of Obamacare. (Elmendorf has already been called into the Oval Office.)

But one thing should be clear when it comes to estimating the cost impact of nationalized health care: A federal government that for decades has been such a reckless manager of its entitlement programs does not deserve the benefit of the doubt.

Compared to the U.S. government, all those banks that piled up bad loans prior to the housing crisis were amateurs.

– Mr. Kerpen is director of policy for Americans for Prosperity.  He can be reached through www.philkerpen.com.



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