During the NGA Show’s opening day, former Sen. Alan Simpson (R-Wyo.) and Sen. Erskine Bowles (D-N.C.), co-chairs of the National Commission for Fiscal Responsibility and Reform, discussed the economy and America’s current fiscal system in a lively keynote presentation.
Both speeches emphasized unsustainable spending and national debt, covering healthcare, Social Security, national defense, taxes and compound interest.
“The biggest challenge we face, by far, is healthcare,” said Bowles, a native of Cody, Wyo.
The 40 million Americans without insurance still get healthcare through emergency services, which end up costing businesses and citizens in the form of higher taxes and insurance costs.
According to Bowles, the system is unsustainable: “It won’t be long before all we’ll be able to do is take care of a couple of old coots.”
Simpson, raised in Greensboro, N.C., agreed. “It doesn’t matter what you call it. Call it Elvis Presley Care or I Don’t Care Care—it can’t possibly work,” he said.
Simpson cited health crises, like diabetes and obesity, along with doctor pay, provider profit and hospital bookkeeping as principal concerns that will impact the system. Simpson also said the national debt and spending plays a role in healthcare’s failure, too.
However, Simpson didn’t express sympathy for seniors looking to get more out of Social Security.
“The most beautiful letters I get,” he said sarcastically, are from people over age 65 saying, “‘I’ve put in from the beginning, and I want it all out here.’”
He responds: “I’m 81. I’ll tell you, pal, that I put $5 in when I was 15, and I never put in over $874 a year until the ’70s and neither did you…They don’t like (when I tell them) that,” he said.
Social Security, Bowles noted, has a “math problem.”
When Roosevelt created Social Security, “average life expectancy was 63. You got Social Security at 65…Today, average life expectancy is 78. You get Social Security at 62.”
The result, Simpson said, is that Social Security has “$900 billion negative cash flow today.”
Through their commission, the two have proposed raising the retirement age to 68 by 2050, but the AARP, Simpson said, felt that wasn’t enough time to prepare.
To that, Simpson said, “We think they can do it unless they’ve got rocks for brains.”
Making changes to Social Security is not a matter of not taking care of today’s seniors; it is a matter of making sure “it’ll actually be there for the people who need it,” Bowles pointed out.
National defense, the two agreed, is another pressing issue.
“We spend more on national defense than the next 17 largest countries combined. That includes Russia and China,” Bowles said. “America bears a disproportionate responsibility for global world peace”—something he doesn’t think the country can afford.
But the problems with national defense also are linked to spending, Bowles said. “Today, America has a treaty with Taiwan that we’ll protect Taiwan if they’re invaded by the Chinese. There’s just one problem with that: We’ll have to borrow the money from China to do it!”
Not all spending is bad, however. Simpson noted that part of the defense budget goes to healthcare for military retirees and Department of Defense schools across the country.
The fourth issue is taxes.
“We have…the most inefficient, globally anticompetitive tax code that man could dream up,” Bowles said, adding, “I could go to the finance professors at Duke (University) and ask them to design a new one, and they couldn’t even design a stupider one than the one we have in this country.”
“Backdoor” spending reduces the amount of tax revenue, too.
“People always ask me, ‘How can we have such high taxes and net such a relatively small amount of money?’”
Simpson and Bowles’ plan is to use 4 percent of taxes to reduce the deficit and the other 96 percent to “reduce income tax rates,” Bowles said. To those that fear corporations will use the extra money to buy back stock or to give to their shareholders, Bowles isn’t worried: “At least the money will be circulating here, creating jobs here rather than stuck over there creating jobs over there.”
Compound interest is the fifth concern, which Bowles also links to spending.
“Today, even at these unbelievably low interest rates, we’re spending $230 billion a year on interest…That’s more than the country spends at the Department of Commerce, Education, Energy, Homeland Security, Interior, Justice, the entire courts system and state combined,” Bowles said.
And with compound interest, that $230 billion will grow.
Bowles predicted that the U.S. will be spending $1 trillion on interest a year “if we don’t do something to put our fiscal house in order.”
Simpson added, “There is a tipping point here…the markets will call (the debt). They don’t care about Democrats or Republicans or the president. They care about their money,” he said. “When the call comes, they’re going to be very sweet. They’re going to say, ‘You love money. You’re addicted to debt. You have a dysfunctional government, and we want more money for our money.’”
Simpson said that is when inflation and interest rates will rise.
“And guess who gets a kick in the shorts? The little guy that everybody talks about day and night.”