Industrial Insight

Our federal budget problem… | November 22, 2010

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/21/AR2010112102277.html

Our burgeoning budget and the politics of avoidance

By Robert J. Samuelson
Monday, November 22, 2010

To understand our predicament, glance at the table below. It shows federal taxes and spending as a share of GDP for 2006 (the last “normal” year before the slump) and projections for 2020 and 2035. The Social Security, Medicare and Medicaid forecasts – reflecting current benefits – come from the Congressional Budget Office. Other spending categories are held constant as a share of GDP. There’s no room for big emergencies or new programs. Though crude, the resulting numbers capture the mounting pressures.

The federal budget as share of GDP

2006 2020 2035
Spending 20.1 24.2 28.9
Social Security Medicare,Medicaid 8.3 12.4 17.1
Defense 3.9 3.9 3.9
Other spending 6.2 6.2 6.2
Net interest 1.7 1.7 1.7
Taxes 18.2 ? ?
Deficit 1.9 ? ?

It’s scary. From 2006 to 2035, federal spending goes from 20 percent of GDP to almost 29 percent. Social Security, Medicare and Medicaid (including Obamacare) account for all the increase. The reasons: More elderly people and climbing health costs. In 2035, the 65-plus population will be 93 percent larger than in 2010. Paying for bigger government would require a tax increase of about 50 percent. If we want to avoid a tax increase – while honoring existing Social Security and health-care benefits – we’d have to cut all other programs by about 80 percent. (And these figures are probably optimistic, because interest on government debt is assumed to remain low.)

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