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Retirement Planning > Saving for Retirement

Budget Eperts: Save Now Or Weep Later

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Experts are asking Congress to do a better job of coming up with the revenue to cover the cost of future liabilities.[@@]

One group of budget watchers called for a general effort to return to the “pay as you go” philosophy, to keep programs from causing huge federal budget deficits in coming decades, while Congressional Budget Office Director Douglas Holtz-Eakin promoted efforts to put Social Security, Medicare and Medicaid on solid footing by boosting the national savings rate.

The budget cutters released a joint statement Thursday that criticizes efforts to enact a permanent repeal of the federal estate tax, create new retirement savings tax incentives and eliminate the alternative minimum tax without providing new sources of revenue to replace the lost tax revenue.

Proposals that would increase the budget deficit and the government’s debt “might not be too alarming if we could be sure that they were short term and that we would be returning to a balanced budget in a few years,” says Robert Bixby, executive director of the Concord Coalition, Washington, one of the groups that put out the joint statement. “Unfortunately that is not the case.”

Many of lawmakers’ proposals carry a low cost in their first few years but could have an enormous cost in the years beyond the 10-year timeframe the government normally considers when making budget projections, Bixby warned.

“It could be very damaging to markets both at home and abroad that the president and the Congress have no interest in fiscal discipline,” Bixby said.

If lawmakers eliminate the AMT and the estate tax, they could add more than $1 trillion to the federal debt over the next 10 years and far more in coming decades, according to the groups that issued the joint statement.

Coalition members say they believe many members of Congress would support a return to the old pay-as-you-go concept.

Charles Stenholm, a Democrat who once represented Texas in the U.S. House, says persuading rank-and-file members of Congress to support pay-as-you-go could influence the thinking of House leaders.

“When you find yourself leading the herd, it’s a good rule of thumb to look back once in a while and make sure the herd’s following you,” Stenholm says. “If we can’t get to the leaders, maybe we can get to the herd.”

Meanwhile, Holtz-Eakin reminded lawmakers at a House Ways and Means subcommittee hearing that the bonds backing Social Security are set to run out in 2052, that the United States might have to struggle to pay interest on the bonds long before 2052, and that the share of U.S. gross domestic product going to fund Medicare and Medicaid could rise to 20% by 2050.

“Unless taxes rise well above their historical levels, the gap between spending and revenue will widen, expanding the amount of federal borrowing,” Holtz-Eakin predicted. “The resulting increase in government debt could seriously harm the economy.”

Congress could ease the burden by finding ways to encourage pre-funding of future obligations, Holtz-Eakin said.

“That goal can be accomplished by increasing national saving, which is the combined saving of the private sector and the government,” Holtz-Eakin said.

Increasing national savings, he added, would also help to strengthen the economy as the pool of funds for investment are increased, adding capital and providing resources to purchase assets from other countries.

“As investment in businesses’ structures and equipment increases, workers become more productive, real wages rise, and the United States is able to produce more goods and services,” Holtz-Eakin said.


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