Despite the job-hunting anxieties and mounting college loans that currently plague American students, it is still staggering to see that we may be the first generation in our nation's history to face the real prospect of having a lower standard of living than the previous generation. We have inherited a fiscal mess, one we had no hand in creating, which threatens our nation's economic stability and is eroding our quality of life.
Over the course of the past three decades, the federal government has run significant budget deficits. We now have over $11 trillion in public debt -- equivalent to over $35,000 for every man, woman and child. In 2007 alone, taxpayers paid $237 billion in interest on that debt. This fiscal picture is only going to get worse. The current stimulus package entails a huge increase in spending. While this spending may be justified given the severity of our current economic situation, we need to remember that it is not "free money." It means borrowing to finance the record $1.8-trillion fiscal deficit this year and similar deficits over the next several years.
But this is not the worst of it.
The United States has a rapidly aging population; every single day, over 10,000 people become eligible for Social Security. Our government has long known that the number of retirees will almost double to 77 million people over the next two decades. This growth is already placing mounting pressure on Medicare, as health care costs have exploded. Already, our government has made approximately $53 trillion in Social Security and Medicare promises.
Yet, our government has saved nothing to support retirees. In fact, our government has repeatedly raided the surplus in the Social Security "trust fund" and spent it on other budgetary expenditures. Current taxpayers' contributions pay for the benefits of current retirees. As a result, our generation will face either a doubling of our tax burden or huge borrowing costs to pay for the much larger baby boomer generation's retirement benefits.
But there is also a more immediate danger if we fail to act now. Large, unsustainable fiscal deficits may undermine investor confidence -- particularly that of foreign investors who now buy nearly half of new Treasury bond issues. These bonds are used to finance our deficit. While the current economic crisis is bad, can you imagine how much worse it would be if we had difficulties in borrowing to finance the stimulus package, or if we were forced to pay higher interest rates in the midst of a recession? This scenario is not far-fetched; Standard and Poor's suggested they might downgrade U.S. government paper in 2012. This means that U.S. Treasury Bills' "riskiness rating" would increase -- and riskier investments carry higher interest rates.
In the midst of the current crisis, we realize we cannot do much about the short-term fiscal deficit. However, Congress should stop talking, and start taking concrete steps to get the long-term budget back on track. This means making shared sacrifices in all the major entitlement programs, including a combination of benefits cuts and tax increases. Current and future retirees need to regard Social Security and Medicare as a supplement to the retirement savings, rather than its entirety.
To reform Social Security, we should consider gradually raising the retirement age to at least 70 years, removing the cap on payroll tax (currently at $106,800 of income) and reducing benefits for wealthy seniors. For Medicaid and Medicare, the bigger challenge is to contain rising health care costs. Any solution should include greater cost sharing and measures to discourage overuse and overspending of medical services. For the future viability of these programs, we need to reform our tax system in a way that will raise revenues without harming incentives for work, saving and investment.
Our generation must take a leading role in this debate. We must demand that our political leaders address entitlement reform to ensure that the burden of payment does not fall unfairly on our generation and future generations.
This is going to take a strong bipartisan, intergenerational effort. Last fall's election showed that young voters have an important stake in the political process and can be a force of change. We cannot ignore our future problems anymore.
