The Washington Post recently reported the total liability of the United States government has reached $54 trillion. This figure includes the federal deficit, as well as the unfunded portions of Medicare and Social Security. $54 trillion is a large number in both absolute and relative terms — US GDP in 2008 will come in around $14 trillion. To cover this liability we will need to make at least one of the following unsavory policy choices:
1. Print money (inflate the dollar)
2. Borrow more (upward pressure on cost of capital for everyone in the US)
3. Raise taxes
4. Cut spending
The reality is, we are going to be stuck with some of each. But the longer our country waits to address this (Presidents Clinton and Bush have done little) the more of this economic burden will be borne by our children. This sad situation should be seen for what it is — stealing from our youth to pay for our own conspicuous consumption. We all deserve blame for this and it needs to be fixed.
So how does all this jive with our fine presidential candidates? John McCain has proposed a series of tax cuts including the renewal of the Bush tax cuts. The trouble with these cuts is that they are not accompanied by corresponding spending cuts. Republicans like to make the argument that tax cuts will actually increase tax base in the future. Unfortunately, the truth is likely more muddled. And since McCain appears inclined to spend more money on Iraq and national defense, a McCain administration seems destined to drive our country, and our children, deeper into debt.
Sadly, Barack Obama's economic plan is scarcely better. While Obama proposes keeping the inheritance tax and repealing the Bush tax cuts on the wealthy, his left-leaning campaign promises on social issues such as healthcare and education will likely be expensive.
Our country's best hope at this point is that McCain and Obama are simply making populist promises and when one or the other is actually president he will show much more fiscal discipline than has heretofore been exhibited on the campaign trail.