Economic crisis take 2

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Peter Petersen who is life long republican, head of the Federal Reserve Bank of NY and Secretary of Commerce under Nixon was on NOW last night. [see transcript of Petersen interview NOW 9/26/03] He brought up another component of the long term deficit that I haven't heard anyone else mention - at least in terms of real numbers - the under funding of liabilities for Social Security and Medicare. An underfunded liability of $25 TRILLION by 2013. Petersen stated that we have two financial crises going - domestic and foreign. We have the projected deficit of over $450 Billion for this year that is expected to be somewhere between $8 and $14 Trillion by 2013.

This is a huge bill, but how huge is it?

If my math is right and my place holders correct ...

Projected deficit 2013 $8,000,000,000,000
SS underfund 2013 $25,000,000,000,000
Total deficit by 2013 $33,000,000,000,000

Rounded population of the United States 300,000,000 (300 million)

If you divide the projected deficit by the rounded population it comes out to be $110,000 per person.

That looked like the price of a very modest home to me and so I plugged the numbers into a mortgage calculator, and assumed a 30 year loan at 3% (very hopeful on my part). The result?

Monthly payment: $463.74
Interest paid over the life of the loan $56956.19

Now here's some things to keep in mind.
1. This is the MONTHLY bill for every individual including infants, so the actual bill will be higher for those paying taxes at that point - probably at least twice that much or $920 per month

2. This payment is for the deficit only. It does not include normal taxes for normal operation.

3. This is calculated in today's dollars and is likely to be significantly higher in 2013 dollars.

Petersen stated that payroll taxes for funding of Social Security and Medicare would take a payroll tax between 25% to 35% for today's children and grandchildren. Remember that is for SS and Medicare only - not other debt and not for government operating taxes.

I have trouble really grasping what big numbers mean. I can get that each taxpayer will be buying approximately 2 houses (neither of which they get to live in) to pay the deficit and a third house (which they also can't live in) to pay for "normal" tax expense. Since today's children and those who they will bear will be buying 3 houses and living in none of them, I have to wonder where and how they will live.

So let's just run up the bill and continue cutting taxes. Live it up and hock the future. When today's children grow up they are likely to be crouched under crumbling bridges. I'm sure they will thank us for our foresight.

Posted by rowan at September 27, 2003 07:22 AM | TrackBack | Printable Version | [eMail this article!] |