NCPA - National Center for Policy Analysis

A NEW KIND OF DEBT

August 3, 2004

When the baby boomers retire, the informal debt of Social Security and Medicare promises will start becoming formal debt, says author Scott Burns. This will change our economy.

When the employment tax surplus disappears, Social Security will start to redeem the hoard of Treasury obligations in the trust fund. Instead of reducing government need to borrow from the public, Social Security Trust Fund redemptions will increase government borrowing from outside sources, explains Burns.

  • Using the high-cost assumptions from the Social Security trustees, the Social Security and Medicare programs will be cash-short in 2010.
  • By 2025 the benefits-driven deficit will hit $1.2 trillion; $2.4 trillion in 2031; $6.5 trillion in 2043; and $58.3 trillion in 2080.
  • The benefits deficit will grow to 2 percent of the gross domestic product (GDP) in 2020, 5 percent in 2030, 7.5 percent in 2040, and 14 percent in 2080.

The worst year of the Great Depression, 1934, had a budget deficit of 5.9 percent of GDP. Only the war years -- 1942 through 1945 -- had larger deficits as a percentage of GDP, notes Burns.

This is just the benefits deficit. It doesn't include the tendency of the government to run at a deficit in its normal operations, says Burns. In the last 74 years, normal government operations have run a surplus eight times: 1930, 1947, 1948, 1951, 1956, 1957, 1960 and 2000. The combined total surplus in those years amounted to 9.5 percent of the GDP. In 2004 and 2005, alone, the deficits in the normal budget are on track to total 10.4 percent.

Source: Scott Burns, "New kind of deficit is coming," Dallas Morning News, August 3, 2004.

 

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