The U.S. is not only the world's biggest economy, it also the world's biggest debtor nation.
Just 10 years ago the national debt was $6 trillion. Today, it has more than doubled, to $14 trillion.
And it was just 10 years ago that the Clinton administration handed off a large surplus to the new president, George W. Bush.
Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, says those surpluses were projected to continue. But they didn't.
"We were running deficits in the past decade when we shouldn't have been," she says. "They came from tax cuts that weren't paid for. They came from fighting two wars without paying for them, when normally in our past, we have. They came from the addition of things like the prescription drug program — not paid for — and high growth in government spending in general."
A reflexively anti-tax ideology resulted in a 'borrow and spend' mentality.
As a result of that uncontrolled deficit spending, says MacGuineas, the government was taking on more debt when it should have been saving to prepare for the big Medicare and Social Security payouts it has promised to current and future retirees.
But then the government's fiscal position got even worse when the financial crisis hit. Unemployment skyrocketed when millions of people lost their jobs. That shrunk the tax base and cut government revenues. At the same time, all those millions of people started collecting unemployment benefits. Add in the bailout bills and President Obama's giant stimulus package, and the deficit soared even higher.
"All of these factors came together and just piled on the trillions of dollars of debt," MacGuineas says. "And our debt climbed to levels that are well above the historical averages, and the problem is it's on a trajectory to grow even more."
As big as our deficits and debt are today, they will only get bigger as a result of entitlement spending. Due to our aging population, Medicare will become a budget buster. Add in Social Security obligations to a larger group of retirees than there are workers, and it spells trouble.
Social Security's shortfall can be solved by modestly raising payroll taxes, cutting benefits, raising the retirement age or some combination. But Medicare is a different story, MacGuineas says.
"When it comes to Medicare and health care in general, we just don't know how to fix it," she says.
If rising healthcare costs remain unchecked, Medicare and Medicaid, the health program for the poor, could consume nearly a third of the total budget just 10 years from now.
The first wave of the 76 million strong Baby Boomer generation — a group that represents 25% of the U.S. population — will begin retiring on January 1, 2011, little more than a month from now.
Think of it as a coming tsunami.
To address the continuing deficit problems and begin chipping away at the underlying debt, taxes will have to be raised, deductions and write-offs eliminated, and significant and widespread budget cuts enacted.
Even then, the gap opened by the tax cuts and new entitlements enacted during the George W. Bush administration will be difficult to overcome.
President Obama's deficit commission has delivered its plan, and the Bipartisan Policy Center has issued its own. There will be many choices, many debates, and many tough decisions to make in coming months and years. They will all be difficult, uncomfortable and unpopular.
That's why Washington hasn't done anything about the debt problem for the past decade.
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