Freeman

BOOK REVIEW

Facing Up: How to Rescue the Economy from Crushing Debt and Restore the American Dream

A Badly Needed Education in Economic and Budgetary Realities

OCTOBER 01, 1994 by JOHN ATTARIAN

Simon & Schuster • 1993 • 411 pages • $22.00  by Peter G. Peterson

Though our national debt keeps soaring, efforts to face it honestly are rare. Peter Peterson’s Facing Up is one of the few. Founder of the deficit-fighting Concord Coalition, Peterson confronts the problem and offers a plan for budget balance by the year 2000.

Spurning glib “explanations” of our deficit problem—the defense buildup; poverty programs; failure to cut taxes further—Peterson shows that the real culprit is out-of-control “entitlement” programs providing generous Social Security, Medicare, and other benefits to almost everyone. Entitlements accounted for about $800 billion in fiscal 1993, or 53.5 percent of the budget. Moreover, the bulk of projected future spending is for entitlements. “The budget arithmetic is inescapable: We just can’t get the spending cuts we need from anywhere but entitlements.”

To support this argument, Peterson gives a splendidly thorough account of the entitlement state’s metastasis and our transformation from a responsible, thrifty society to a “choiceless society” fecklessly evading hard tradeoffs. He coolly explodes such pernicious myths as: Most entitlement spending is for the poor (in fact, most benefits the middle class); Social Security and Medicare only give beneficiaries their contributions back (most receive far more than they paid); and Social Security’s huge surplus will pay the benefits promised to Baby Boomers (the “surplus” consists of government debt for which future taxpayers will be liable).

Facing Up is a wide-ranging and badly needed education in economic and budgetary realities. The “Visual Guide” of charts depicting our stagnating living standards, deficient investment, plunge into debt, and entitlement explosion more vividly illuminates our predicament. Financing our huge entitlement-driven deficits is absorbing more and more of our savings, draining the pool of money available for investment to raise output and productivity and maintain living standards. Thus, while entitlement commitments soar—total unfunded benefit liabilities as of 1991 were $14.4 trillion—our ability to pay them is falling. Ultimately, our evasion of reality threatens our way of life.

As our denial is bipartisan, so is Peterson’s wrath. He trounces Ronald Reagan for “the pseudosacrificial chopping away at the means-tested and investment corners of the federal budget; the silent approval of the vast increase in ‘middle-class’ entitlements; and, above all, the unwillingness to take the ominous deficit issue directly to the public.” Bill Clinton, too, “squander[ed] a great opportunity” with inadequate deficit reduction proposals; after alarmist rhetoric “all he was able to give us to cure our economy’s ills were a few teaspoons of syrupy medicine.”

Demanding that we face up, Peterson courageously drives home the unlovely truth that “we are all on welfare of one kind or another . . . all of us have decided that we are entitled to much more than our society can afford to pay for.” “Most Americans—emphatically including the middle class—will have to give something up, at least temporarily, to get back our American Dream.” (his italics)

Hence he rightly rejects budgetary book-cooking and is dubious about a balanced-budget amendment. He prescribes increased high-income, liquor, cigarette, and gasoline taxes, plus a five-percent consumption tax, in return for further defense cuts, more public-sector investment, and a ten-percent real cut in domestic discretionary spending. Peterson would also increase the taxability of most entitlements, trim others, and most important, apply a highly progressive means test to cut entitlements for above-median-income beneficiaries. These proposals have the merit of honestly administering necessary, unpleasant medicine, but unfortunately have many problems.

Taxes have already been raised repeatedly, to little avail—because spending cuts promised in return never came. With such a fiscally perfidious Congress, this is not a safe bargain to strike.

The means test does what must be done: perform the lion’s share of the entitlement carvery on the middle class. But given his own account of the problem, it’s not enough. We should eliminate entitlements to all above the poverty line except federal retirees and veterans with service-related injuries, and gradually replace them with private alternatives below it. This would produce bigger surpluses faster.

Peterson’s proposals to raise the Social Security retirement age and benefit taxability are sensible, but inadequate. Even if per capita benefits are trimmed, the retiring Baby Boomer generation would still swamp Social Security by sheer numbers. Given our aging population, Social Security is doomed.

Similarly, Peterson’s proposal to cut farm supports is a step in the right direction, but we’d do better to abolish them.

Unfortunately, Peterson advocates expanding the entitlement state with universal basic health care coverage. In a glaring contradiction, he deplores the entitlement mentality, yet concurs with Henry Aaron’s assertion that universal access to health care is “a standard perquisite of citizenship in modern developed nations.” Since when?

The affluence test, higher taxes, and expanded low-income benefits risk creating perverse incentives for middle-class people to hide their wealth to protect their entitlements. This is not farfetched; grown middle-class children are already reallocating their parents’ wealth to artificially impoverish them so they can qualify for Medicaid.

But most important, while a balanced budget or small surplus by 2000 is a laudable goal, it is not enough. Even if we reach it, we would still have a national debt exceeding $5 trillion, and its interest cost would be staggering: Rather, we must slash the debt by running surpluses the size of our recent deficits.

That, however, would entail facing up to things which not even the sturdy Peterson admits: that entitlements are not merely out of hand but inherently untenable; that national bankruptcy is inevitable when the government is charged with protecting us from life; and that for sound finance to be restored, the entitlement state must be not reformed but demolished.

But though there is much to dissent from, Peterson has served America nobly. Educating the country is crucial to solving the problem, and Facing Up is a huge stride to the budgetary blackboard. []

Dr. Attarian is a freelance writer in Ann Arbor, Michigan.

ASSOCIATED ISSUE

October 1994

comments powered by Disqus

EMAIL UPDATES

* indicates required
Sign me up for...

CURRENT ISSUE

July/August 2014

The United States' corporate tax burden is the highest in the world, but innovators will always find a way to duck away from Uncle Sam's reach. Doug Bandow explains how those with the means are renouncing their citizenship in increasing numbers, while J. Dayne Girard describes the innovative use of freeports to shield wealth from the myriad taxes and duties imposed on it as it moves around the world. Of course the politicians brand all of these people unpatriotic, hoping you won't think too hard about the difference between the usual crony-capitalist suspects and the global creative elite that have done so much to improve our lives. In a special tech section, Joseph Diedrich, Thomas Bogle, and Matthew McCaffrey look at various ways these innovators add value to our lives--even in ways they probably never expected.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION