Mortgaging Our Children’s Future

The San Jose Mercury News, July 13, 2003
By Leon E. Panetta

The fundamental principle that has strengthened our democracy for over 200 years is the commitment to give our children a better life.

The preamble to the Constitution commits the nation to securing the “blessings of liberty to ourselves and our posterity…”

John Adams wrote to his wife Abigail in 1780: “I must study politics and war that my sons may have the liberty to study mathematics and philosophy…in order to give their children a right to study painting, poetry, music…”

From the colonists to the pioneers to the immigrants – the sacred covenant was to make life better for those who followed. My Italian immigrant parents often told their sons that they came to this country because they could give their children greater security and opportunity.

But that covenant comes with a price – sacrifice. The will to fight and die if necessary, to work and save, to sweat today in order to build for tomorrow – those are the values that generations embraced in order to make this nation strong. No country can enjoy a growing standard of living without investing and no country can sustain investment without saving.

That principle of building a better future for our children is in serious danger today. At both the federal and state level, there is a callous attitude that a burgeoning debt can somehow take care of itself. Republicans say they will not raise taxes. Democrats say they will not cut programs. However, both appear to be more than willing to “borrow” from the future in order to pay for their political agendas today.

Whether it’s a new tax cut or a prescription drug benefit or an easy way to resolve a budget conflict, mortgaging the future – in other words, stealing from our children – is better than having to make the sacrifices our parents made for us.

A floor broker at the New York Stock Exchange once told me that to deal with corporate governance issues, I had to understand that Wall Street operates by two principles – “fear and greed.” Those same principles appear to have captured Washington and Sacramento as well.

In Washington, a $5.7 trillion surplus has now become a projected $4 trillion addition to the debt. By 2013 – 10 years from today – the total debt will represent 44 percent of the gross domestic product of the United States. A balanced budget now has turned into a record $400 billion deficit this year. Deficits are projected to continue at that level or higher for the foreseeable future. Three successive tax cuts are expected to drain more than $3 trillion from the budget. The prescription drug benefit will require another $400 billion to be borrowed. The retirement of the baby-boom generation will cost billions more in Social Security and Medicare payments. None of this includes the continuing cost of the war in Iraq.

The U.S. will have no alternative but to borrow more to pay the bills. To attract the necessary foreign and domestic capital, long-term interest rates will have to ultimately go up. This will not only increase the cost of borrowing, it will reduce the amount of capital available to the private sector for investment. And when investment is reduced, so is the standard of living.

Who will pay the price for all this borrowing – our children. The interest on all this debt will be close to $600 billion. The political agenda of the moment will have been paid for by the most regressive tax increase of all – the tax our children will have to pay on $4 trillion of new debt. Not exactly what I would call securing “the blessings of liberty … for our posterity…”

The picture in Sacramento is no better. Total state budget deficits are expected to exceed $49 billion in 2003 and $80 billion in 2004. California alone will have a budget gap of $38.2 billion by next July. While 29 other states have had to raise taxes and make deep spending cuts, the governor and the Legislature in Sacramento are politically gridlocked on whether to raise taxes or cut spending or do both.

As the pressure builds for some kind of compromise, both sides will be tempted to resort to the same kind of quick-fix solution that Washington has done so well – borrow. According to one estimate, as much as $18 billion – nearly 20 percent of the entire state budget – will be in fund shifts, deferrals or missed payments, loans from various funds, and deficit bonds.

These gimmicks buy time but ultimately the costs will come back with a vengeance. As an example, this spring the state borrowed money to pay its annual $1.8 billion pension obligation. But the interest on the loan will put the total value of the payment at more than $2 billion over a five-year period. Next year, the state will have a $400 million interest obligation on the loan as well as its regular $1.8 billion contribution to the retirement fund.

Because of this kind of borrowing, a $23 billion deficit last year is now $38 billion and getting worse. The failure of leadership to face up to the tough choices on taxes and spending today will force our children to pay the price tomorrow.

So if we believe that the American dream is to give our children a better life and that each generation must be willing to sacrifice for the next, then what is going wrong?

Part of the reason is the nature of politics today. Both political parties are too partisan. Redistricting protects safe districts for both parties and makes representatives less responsive to all of their constituents. Political leaders are more beholden to special interest money and less willing to take risks. Message politics and negative ads are viewed as more effective to achieving political power than making the tough choices that solve problems.

But part of the reason also rests with all of us – the so-called voters. “So-called” because too few are really involved. Less than one-third of the eligible voters cast their ballots in the last California election. Politics is becoming a spectator sport. We all observe the political chaos – from recall elections to budget gridlock to special interest fund-raising – like it was part of a bad summer sit-com on television. If we fail to hold our representatives accountable, they will always take the easy way out.

The covenant that commits this nation to improving the lives of our children binds not just our political leaders but all of us. Until those elected to office realize that none of them will survive the next election if they fail to lead, nothing will really change. That will not happen with a one-shot partisan recall effort aimed at one person. Only when the public is motivated to vote in force in the normal election cycle will all elected representatives understand that politics is not just about survival, it is about governing.

Unless that fundamental change begins to happen, we will continue to mortgage the future for our children.

© 2003 Monterey County Herald and wire service sources.
All Rights Reserved.