Our Children Will Pay the Bill for Bush’s Budget

It was easy to laugh at the lockbox.

But now that it’s gone -- blasted to bits by President Bush’s federal budget -- it’s worth pausing to consider what the lockbox represented. It was a promise between generations, a rare, perhaps unprecedented effort by the baby boom generation to put another’s interests above its own.

Now that promise is broken. And the bright young things in Gen X and Gen Y will pay the price for years.

For those a bit rusty on the details, the lockbox was the idea first advanced by President Clinton and then endorsed by Bush and Democrat Al Gore in the 2000 presidential race.

It said Washington should balance its budget without tapping any of the surplus tax revenue temporarily accumulating in Social Security before the first wave of baby boom retirements.

That would allow government to devote the Social Security surplus solely to paying down the national debt. And that would substantially reduce the federal government’s annual interest costs, leaving Washington more money to help pay for Social Security and Medicare when the baby boomers begin retiring at the end of this decade.

In effect, the lockbox offered the baby boom generation a chance to help prepay for its retirement so the crushing costs wouldn’t fall so heavily on its children.

Under the lockbox vision, the reduction in federal interest costs would largely offset the increased costs of Medicare, Medicaid (which funds nursing-home care for low-income seniors) and Social Security as the baby boom generation retires. And that would reduce the pressure to raise taxes on families in the work force 10 and 20 years from now.

The generational accounting in the lockbox strategy was straightforward. Today’s earners, dominated by baby boomers, would resist the temptation of voting themselves big tax breaks or expensive new programs out of the projected federal surpluses so they could reduce the tax burden on their children.

In other words, as a country we would do what many parents do every day: defer gratification in the interest of the next generation.

The payoff for maintaining that discipline could have been enormous.

In 2000, the publicly held national debt stood at $3.4 trillion and the federal government paid $223 billion in interest to service that debt. Before Bush took office, the nonpartisan Congressional Budget Office projected that if the federal government held to the lockbox strategy, it could virtually pay off the publicly held national debt by 2008 -- making the nation debt-free for the first time since the Andrew Jackson administration in the 1830s.

That would reduce federal interest payments to about $50 billion a year by the end of this decade, and eventually eliminate them.

Consider that the road not taken.

Amid war, recession, the $1.35-trillion, 10-year cost of Bush’s 2001 tax cut, the $1.45 trillion in additional tax cuts he’s proposing for the next 10 years, and his proposals to increase spending on defense and a Medicare prescription drug benefit, the administration projects federal deficits through the decade. Under Bush’s plan, Washington will not only spend all of the Social Security surplus the lockbox promised for debt reduction, but also borrow billions more on top of that.

In 2008, the year the Congressional Budget Office initially projected that the publicly held federal debt could be eliminated, Bush’s new budget anticipates that debt will soar past $5 trillion, the highest level ever.

That means if Bush serves two terms, he will increase the federal debt more in absolute dollar terms (though not as a share of the economy) than President Reagan did during his eight years.

All of this guarantees billions in higher interest costs for future generations.

Remember the estimate that Washington could reduce its interest costs to about $50 billion a year by the end of this decade? Bush’s budget says Washington will be forced to spend $250 billion a year to service the debt by 2008. By 2020, when Washington might have been debt-free, Bush projects that interest costs will consume almost 9% of all federal spending.

And precisely as we’re handing our kids the bill for this massive debt, we’ll also be asking them to bear the cost of our retirement. The number of people receiving Social Security is on track to rise from just more than 45 million today to 69 million by 2020. The number of seniors receiving Medicare is expected to jump to 60 million from 40 million over the same period.

More beneficiaries (and relentless medical inflation) means soaring costs. Measured as a share of the economy, Social Security, Medicare and Medicaid will cost 50% more in 2020 than they do today, the administration estimates.

At the same time, defense spending is sure to rise steadily as the nation confronts the open-ended threat of terrorism.

In 10 years, today’s young workers could face a triple witching hour -- with a kicker. They will have to foot the bill for the baby boom generation’s retirement, a big defense buildup and soaring federal interest payments, even as the cost of the tax cuts Bush has already won or proposed hits $330 billion a year, by the calculation of Brookings Institution economist William Gale.

Bush’s budget does one favor for the next generation. Though he hasn’t tipped his hand on specifics, Bush at least acknowledges the necessity of bringing the long-term costs of Medicare under control, which most Democrats still refuse to do.

But any savings Medicare reform might provide future taxpayers are overwhelmed by the increases in the national debt that Bush’s proposed tax cuts would produce.

In fact, a tax cut that increases the national debt doesn’t deserve to be called a tax cut. It’s really a transfer of tax obligations from this generation to the next.

Our children will pay the bill, through the increased national debt, for the tax cuts we’re voting ourselves today.

And while we’re at it, by cutting taxes during wartime -- something America has never done -- we’ll also hand the next generation the bill for defending the nation.

After Sept. 11, 2001, part of the budget’s deterioration was beyond Bush’s control. But his decisions have deepened the deficit hole.

In his State of the Union address, Bush insisted, “We will not pass along our problems to ... other generations.”

His budget fails his own test. It not only evades problems that will confront the next generation, it compounds them.

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Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at: www.latimes.com/ brownstein.