Wednesday, December 21, 2005

The Dire Fiscal Outlook in America

Conservative maverick Bruce Bartlett have a interesting column in the Washington Times (Thanks Greg Ransom for the link) about the dire fiscal outlook for America. An excerpt:

"According to CBO, spending for Medicare and Medicaid will more than double from 4.1 percent of the gross domestic product to 9.2 percent over the next 25 years and more than triple to 12.6 percent by 2050. But this assumes Congress will show some restraint and keep these programs from rising as rapidly as they have in the past. Under CBO's high-spending alternative -- which I find more likely -- spending for Medicare and Medicaid triples by 2030 and rises to 21.9 percent of GDP by 2050. Total federal spending on all programs is now 20.2 percent of GDP.

By contrast, Social Security, on which President Bush concentrated so much effort, is no problem at all. Its spending only rises from 4.3 percent of GDP this year to 6.6 percent by 2050 even under the high-spending scenario. Rather than waste so much time on a futile effort to reform this program, he should have spent all his time on reducing Medicare's spending growth. Instead, he vastly worsened its problem.

If revenues are held constant at their current 18.3 percent of GDP, the debt explodes, causing the government's interest expense to rise from 11/2 percent of GDP to 4.6 percent by 2030 and 12.4 percent by 2050 under the lower-spending scenario. Under the high-spending option, interest payments rise to 21.4 percent of GDP by 2050.

Under another scenario, CBO assumes that taxes will rise by allowing the Bush tax cuts to expire and Congress enacts no offsets to the growing alternative minimum tax or bracket-creep. This would raise revenues by 6.2 percent of GDP by 2050. Although this mitigates the rise in debt considerably, interest costs still rise to 4.7 percent of GDP by 2050 with lower spending and 13.6 percent with higher spending.

Moreover, allowing taxes to rise this way lowers economic growth. And because indebtedness still rises, more and more of the national income must be send abroad to pay foreign holders of Treasury securities. The result is lower standards of living for all Americans."


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