NCPA - National Center for Policy Analysis


June 7, 2010

The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services, says Douglas Elmendorf, director of the nonpartisan Congressional Budget Office (CBO). 

Addressing the current tax and spending gap to make fiscal policy sustainable is an urgent task for policymakers, he says. 

But devout Keynesians will have none of it.  They're concerned the government is doing too little.  The United States isn't borrowing and spending enough, they say, as if today's spending is a free lunch or a free ticket to prosperity.  However, when the spending stops, the interest on the debt will keep on giving, says Bloomberg columnist Caroline Baum: 

  • The CBO projects that under current law, net interest on the debt will reach $723 billion in 2020, up from $207 billion this year.
  • Ten years from now, five categories -- Social Security, Medicare, Medicaid, defense and net interest -- will account for three-quarters of government spending; four of them are on automatic pilot.
  • If on the other hand, the Bush tax cuts are extended and the alternative minimum tax is indexed for inflation, interest payments on the debt would total $937 billion in 2020, according to CBO estimates.
  • The federal debt would be 90 percent of gross domestic product, what economists Carmen Reinhart and Ken Rogoff, authors of "This Time Is Different," found was a "threshold" for developed and emerging nations, the point at which economic growth slows appreciably.  

It may already be too late to put us on a sustainable path, says Baum.  According to the Social Security Trustees 2009 annual report: 

  • Social Security benefits will exceed Social Security taxes in 2016 and it goes downhill from there.
  • The ratio of workers to beneficiaries has been stable at 3.2 to 3.4 since 1974.
  • By 2030, when most of the babyboom generation will have retired, the ratio is projected to drop to 2.2 and decline slowly after that, according to the report.
  • At the same time, life expectancy is increasing.  

Source: Caroline Baum, "I Want It All, Even Better If You Pay for It," Bloomberg, June 4, 2010. 

For text:

For CBO text:  

For Social Security Trustees report:


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