The Real Cost of Future Deficits
June 9, 2003
The real purpose of a Treasury Department report by Kent Smetters and Jagadeesh Gokhale that shows future U.S. obligations to be $44 trillion was not to alarm people about deficits 100 years or more from now, but to help inform policymakers considering significant changes to programs such as Social Security and Medicare, says Bruce Bartlett.
Using a conventional 75-year time horizon, Bartlett explains, tends to exaggerate the cost of shifting toward private accounts for Social Security, because much of the saving will fall more than 75 years in the future. Nevertheless, the figures reveal important imbalances in our largest entitlement programs.
- The study shows that the biggest fiscal problem we have is in Medicare -- it accounts for $37 trillion of the $44 trillion debt.
- Almost all the rest is accounted for by Social Security, which has promised benefits $7 trillion greater than future revenues will support.
Interestingly, the non-entitlement portion of the budget -- national defense and everything else the federal government does -- runs a substantial surplus. Future revenues are estimated at $85 trillion and spending at $80 trillion. When one throws in the national debt, as conventionally measured, the non-Social Security, non-Medicare portion of the budget is roughly in balance.
This fact puts a lie to the notion that recent tax cuts have somehow contributed significantly to a $44 trillion debt, says Bartlett. The imbalances in Social Security and Medicare are inherent in those programs and will not be cured except by fundamentally restructuring them. Raising taxes or rescinding recent tax cuts will not suffice. Payroll taxes would have to roughly double immediately and stay at that level forever to cover the deficit, or income taxes would have to rise by 70 percent.
Source: Bruce Bartlett, "The Real Cost of Future Deficits," National Center for Policy Analysis, June 9, 2003.
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