Posted on 06/15/2012 9:53:04 AM PDT by SeekAndFind
If the U.S. government continues with its current tax and spending policies, children born this year will be saddled with a crippling publicly held debt that is more than twice the size of Japan's by the time they turn 30 years old. This grim picture, projected by the Congressional Budget Office (CBO) in its newly published annual long-term budget outlook, expects U.S. publicly held debt to grow from 73% of GDP by the end of 2012 to 247% of GDP by 2042.
Worse still, the CBO projects that current policies will continue to drive the U.S. deeper into debt, and by the time today's newborns reach 38 years of age in 2050, the major federal healthcare programs and Social Security will consume all federal revenues, leaving nothing for any other function of federal government or even interest payments on the national debt.
Despite this ominous forecast, prominent economist and former Obama advisor Jared Bernstein is declaring that we don't need to reform Medicare, Medicaid, Social Security, or "government’s other critical functions" in order to prevent an "explosive" debt that "swamps the economy." Bernstein says “it is well within our means” to reduce the national debt by following the “broad outlines” of current law, “meaning all the Bush tax cuts expire, for example.”
When the CBO makes long-term budget projections, it typically projects two scenarios informally called “current law” and “current policy.” Current policy is what the federal government is actually doing, whereas current law is what is on the books. These are dramatically different because Congresses and Presidents have enacted tax and spending laws that don’t account for inflation or wage growth, expire in the future, or become effective in the future. Bernstein suggests that we stick with the current law to solve the looming debt catastrophe.
While Bernstein concedes that some elements of current law may be “unrealistic” in the short-term, he insists “there’s no reason” we can’t follow this plan for the long-term and those who ignore this approach “are doing so not for substantive, but for ideological reasons.”
Bernstein describes his proposal for taming the debt by saying that the “Bush tax cuts would all have to eventually sunset, and we’d need to continue – and ramp up – what looks like early progress on slowing the growth of health care spending.” Although this description is based upon CBO’s projections, Bernstein misrepresents these projections by whitewashing the details of the path he advocates. In truth, it would involve far more expense and sacrifice than he reveals.
Under current law, the good news is that publicly held debt drops from 73% of GDP today to 0% by 2069. This is a vast improvement over just last year when the CBO projected that the publicly held debt would be 75% of GDP in 2069 (this is partly due to the changes in law, but most of the improvement is attributable to CBO’s altered assumptions about future economic and demographic circumstances). The bad news, however, is that the following will also occur:
• federal taxes will perpetually consume a greater share of the U.S. economy, rising to 21% higher than the average of the past 40 years by 2025, 40% higher by 2045, 57% higher by 2065, and 66% higher by 2085. The CBO explains that this incessant tax growth occurs because “most parameters of the tax code are not indexed for real income growth, and some are not indexed for inflation.” As an example, the typical married couple with two children earning the median income of $96,200 will see their income and payroll taxes steadily rise from 13% of their income today to 24% over the next 25 years—an 85% increase.
• Medicare payments for physician services will be cut by 27% starting in 2013, bringing Medicare payment rates down to Medicaid levels. These payment rates have caused substantial problems for patients trying to get access to doctors. These Medicare cuts will increase in subsequent years and then be deepened by Medicare cuts in the Affordable Care Act.
• spending on all federal programs but Social Security and the major healthcare programs will decrease from 12.1% of GDP in 2012 to 7.9% of GDP over the next 25 years—a 35% reduction. This includes programs such as national defense, food stamps, other nutrition programs, unemployment, veterans’ benefits, federal employment retirement benefits, transportation, and education.
The specifics above paint a much fuller and far different picture than Bernstein’s sanitized description of the path he would have us take. It also bears nothing that this is an optimistic scenario because it does not account for the prospect of future severe recessions or major wars, which the CBO acknowledges “will probably” occur and “will probably cause significant and persistent worsening of the budget outlook relative to the projections contained in this report.” These projections also “omit the impact” that higher taxes “would have on people’s incentives to work and save,” and as the CBO explains, these higher tax rates will discourage “many taxpayers” from working and saving.
Like Bernstein, Ezra Klein of the Washington Post has also supported this plan and grossly understated its downsides, calling it the “do nothing” plan. Media Matters for America recently did the same while incorporating significant factual errors into its analysis.
Could we tame the debt in the way Bernstein and Co. claim? Yes, but if Congress and the President do nothing, drastically higher taxes and deep cuts to wide-ranging government programs are also a part of the scenario. Rather than ignore this reality, those who support the “do nothing” plan should candidly argue their case instead of masking how this proposal would impact the nation.
Note: This post was done in tandem with Just Facts President James Agresti. The data we cite can be found in this spreadsheet.
People really don’t get it. The debt is so huge that the only solution to it is to not pay vast sums of money to people to whom it is owed. Ultimately that is what will happen, voluntarily or not, be it through default or monetization of the debt.
Which is why this thing will end in war.
No
Government has allowed this to happen to retain their jobs and lifestyles, and moving money from those who paid in, to those who never paid in.
Someone’s lifestyle is going to be reduced, it just seems like the aged will suffer.
It’s a rhetorical question, right?
I know there are many freepers who have paid into the system for years, and who recognize how utterly hopeless the financial mess is -- and yet they still say "I expect to get what I have coming to me!!"
I see massive default and I see a world war of monumental proportions. What I do NOT see is a bunch of freepers (or anybody) receiving social security checks 15 years from now. It just ain't happening. The math says "No".
No.
—Someone’s lifestyle is going to be reduced, it just seems like the aged will suffer.—
Everyone will suffer. Everyone. The aged (I’m 58 and getting there) are not my concern. We’ve lived a longer life already than most men. I’m willing to die today.
Philippians 1:21
For to me to live is Christ, and to die is gain.
This guy blathers-on about the “Bush tax cuts”.
The Bush tax cuts expired.
They’re the Obama tax cuts now.
No.
Next question.
These articles that fret over how we can or can’t fix this kinda crack me up.
Imagine two men training to jump the grand canyon. One trains by sitting in front of the TV stuffing himself with beer and hot dogs while he watches football. The other takes steroids and works out vigorously on the gym and track and even has a professional trainer.
So, which one will successfully make the jump? Answer? Neither. It’s hopeless if they are depending solely on their human strength.
Likewise with this issue. We are at the point where we have spent our way into such oblivion that severe austerity or printing like Zimbabwe and spending like a drunken sailor will have the same result: collapse and world war.
Get used to it.
The smart people are using whatever they have to buy or make a parachute so it won’t hurt so much when they hit the bottom of the canyon.
No.
That doesn't necessarily have to be the case.
Done properly, it may be possible to gracefully phase it out.
Start raising the retirement age, no other changes for people over 60-or-so, and gradually phase it out over about 40 years.
The new rule would be for every year you are under 60 years old now, your FICA tax is reduced by 2.5%, and your expected Social Security payout is reduced by 2.5%. Deficiences financed by redeeming the Trust Fund bonds (ha! I kill myself!)
I'm not sure how well that plan would work out with the actual demographics, but it might work.
Let’s start with a reform of the public employee retirement systems at all levels of government. Why are these people retiring after 20 years of being overpaid and underworked with 80% of their salaries. Let’s start there.
The amount owed is about 20 times the total money supply.
Imagine someone oweing you $1000 and you know he’ll only ever make $50 in the rest of his life...
you’re not getting it.
You’d spend your brain computing cycles in a much better way answering the question - “how am I going to ride this out to the other side?”
Can we prevent a fiscal collapse by reforming entitlements?
That is the first question we need to ask. I am not sure of the answer. We may be so far gone with what we currently owe that even by reforming entitlements to lessen or stop the amount we borrow, fiscal collapse may be inevitable.
Can we reform entitlements?
This is the next question. As pointed out, even conservative folks here balk at reforming certain entitlements. I see a lot of people worried about the fiscal situation, but not a lot of folks, particularly in Congress, worried enough to do what has to be done to implement true reform.
Therefore, despite the answers to the first two questions, they are probably rendered moot by the answer to the last.
$500 billion - almost 1/2 of the annual deficit - could be elimintated by eliminating welfare.
A 40-year old on welfare should be cut off before an 80-year old on social security sees their meager check reduced.
We should stop giving Federal grants - billions - to Solyndra’s etc.
Here’s the bottom line. Since social security is a separate payroll deduction and the stated purpose of that deduction is to fund social security, then social security and the rest of Federal spending are TWO DIFFERENT THINGS.
People need to understand that they’re saps if they’re ok with cutting social security before everything else has been cut to the bone first.
Wake up, your Congressman is laughing behind your back.
For the first $108,000 (not sure if it’s the current number) of your W-2 wages - every year - over 12% of that has been getting paid into the social security trust fund.
Think about that - 12% of your gross pay.
12%, dedicated to you receiving social security when you retire - not for any other purpose.
Yet YOUR Congressman has been taking the surplus for the past half century and spending it on junk, spreading it around, to get people to vote for him. Whether it’s building projects, roads or welfare, whatever, he’s been spending the surplus and laughing at the rube taxpayers.
Now that the annual surplus is disappearing.................
Instead of keeping the social security benefit payments going according to the deal THEY made, they’re planning on cutting the payments. And they’ll keep the withholdings coming out of paychecks - and undoubtedly INCREASE them !
Absolutely correct. And not a "little" war either - the kind of war that shakes the entire world and kills tens of millions.
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=528809
For those who remember the old Soviet Union, it was a grim place — at least for average citizens. But not so for those in government. Contrary to the official ideals of equality and a classless society that the ruling communist regime espoused, the USSR created a privileged class of party members inside government — the nomenklatura.
This semipermanent bureaucracy earned higher incomes, got better health care, ate better food and had greater job security than average Russians, the much-despised proletarians. Today, our bloated federal government seems, in significant ways, to be creating this same dynamic.
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