in Politics

Running on Empty

Peter G. Peterson was recently on Charlie Rose discussing his new book, Running On Empty : How The Democratic and Republican Parties Are Bankrupting Our Future and What Americans Can Do About It (here’s an excerpt). Here’s two paragraphs that sum up his argument:

The theological war between Republicans and Democrats is bankrupting our future. Our two parties have organized themselves around two lopsided and mutually exclusive world views: Democrats believe every American is “entitled” to government largesse, while Republicans see only the ball and chain of punitive taxation. Each of these views has a set of self-justifying “myths.” But their consequences go well beyond making our political process seem foolish. While federal deficit projections soar to dangerous heights, threatening our kids with unconscionable tax hikes, these myths have polarized the two parties and ruled out the sort of bipartisan consensus Americans need to avert fiscal catastrophe.

During the early years of both Social Security and Medicare, Congress kept tax rates unrealistically low and awarded ever-higher benefits to new retirees who had contributed only for a year or two. That meant that the children of the World War II generation (including the boomers) would have to contribute at much higher tax rates over their entire working lives just to keep benefits flowing to their parents. It’s even worse news for today’s young Americans, whose payroll tax rate will have to double to fund the demographic tsunami of retiring boomers unless the system is reformed.

Peterson points out that 1/3 of Americans go into retirement with no savings, relying entirely on social security, meaning it is not only crucial but more susceptible to a crash when the baby boomers retire than many people think.

He also criticizes the Republicans for wanting to extend their tax cuts and make them permanent, despite the goal being short-term economic stimulation.