Remember the movie Runaway Train? The hair-raising 1985 thriller by Andrei Konchalovsky puts two men on a locomotive without a driver, bound for nowhere at full speed in the middle of an Alaska snowstorm. One man is handcuffed inside. The other, “Manny” Manheim, brilliantly played by Jon Voight, refuses to switch off the fuel supply. Instead, he climbs up on top of the engine, madly waiting to meet his end.
Sometimes, as an economist watching our economy heading for a debt crisis, I feel like the dispatchers in that movie, helplessly monitoring the runaway train as it closes in on the inevitable.
Repeated messages to the driver are ignored. There is nobody listening. The Republican Congressional leadership have left the driver’s seat. When they suspended the debt ceiling they followed “Manny” Manheim up on the roof of the runaway train.
But the Republicans are not alone up there. They are not the only ones who have abandoned the fiscal driver’s seat. In recent weeks Democrats have happily joined the Republicans up on the fiscally irresponsible roof. In their hands they have proposals for two new major spending programs.
The first of their proposals is a paid-leave entitlement program, which can either be run federally or at the state level. The federal model has already been introduced in Congress; the state-based model is being rolled out as a pilot program in the District of Columbia.
While the idea behind a paid-leave program may seem attractive, the actual design of both versions will be a punch in the gut for taxpayers. Both the federal version and the DC pilot program are under-funded; in the case of the federal program, the funding gap is up to 97.4 percent.
Tht’s right. The so called FAMILY Leave Act, proposed by a group of Democrats in Congress, has a funding model that pays for 2.6 percent of the highest possible cost under the Act.
It is simply incomprehensible how anyone can propose a reform like this when all serious forecasters predict a return to trillion-dollar deficits in the next few years.
But apparently things are not bad enough with one new, almost entirely unfunded entitlement program. Some good-hearted Colorado residents have come up with a state-based single-payer health care program. Called ColoradoCare, this program is going to be on the ballot next year, and if approved it would replace private health insurance in the state and pay for it with a ten-percent payroll tax.
ColoradoCare promises “premium care” to all the state’s residents, including those who are currently uninsured, and they promise to provide that care while shaving $5 billion from total health care expenditures in the state.
Here, again, we are dealing with a severely under-funded entitlement program. By any realistic estimate, the cost of the program, if launched today, would be $26.9 billion. The tax that the ColoradoCare initiative suggests would – under favorable circumstances – bring in $16.7 billion, leaving 38 cents of every dollar unfunded.
And that is just for starters. The most absurd part of the ColoradoCare program is that its proponents want to use a tax base – payroll – that over time grows much more slowly than the inflation in health care costs. The unfunded gap is almost certain to double over the first ten years of operation.
The paid-leave entitlement and the single-payer health care idea both have two things in common: they constitute promises from government of delivery of a specific set of services to the general public; and they are both notoriously under-funded. What this means, in plain English, is that both programs will require massive tax increases soon after having been created.
Either that, or government will default royally on its promises to unsuspecting citizens.
This is not difficult to understand. It should not be too hard for the drivers of our fiscal train to hear the warnings of what lies ahead. But just like the Runaway Train, it seems as though every capable driver has left the cabin and climbed up on top of the train. It is getting crowded up there…
Sven Larson, Ph.D., is an economist and Member of the Council of Scholars of Compact for America. He is the author of Industrial Poverty (Gower Publishing) about the debt crisis in Europe. Find his daily blog articles at America’s Fiscal Future.