Our Dire Fiscal Situation I. The Facts

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Take a look at the front page of a new report from the Congressional Budget Office, “The 2013 Long-Term Budget Outlook”.  It shows very clearly the huge fiscal mess confronting our country in the near future.
First of all, our national debt has almost doubled as a percentage of GDP in the last five years, from about 38% of GDP at the end of 2008 to 73% today.  Although the debt is actually projected to dip to 68% of GDP in 2018, it then begins a steady climb because of increasing interest costs as well as increasing spending on Social Security and government healthcare programs (Medicare, Medicaid and the Affordable Care Act).  The debt will be back to 71% of GDP by 2023 and then climb rapidly to about 100% of GDP by 2038.
Notice from the graph that federal tax revenues have just about recovered from the recession and will soon level off at their historical level of about 19.5% of GDP.  But federal spending will resume a steady climb, reaching 26% of GDP by 2038.  As the gap between revenue and spending gets wider and wider, the national debt grows faster and faster.  This is the enormous fiscal problem we are faced with in the next 25 years.   The worse it gets the harder it becomes to turn around.  It is imperative to address this problem without delay.
In order to reduce the debt from its current level of 73% of GDP down to the historical average of 38% by 2023, Congress would have to pass an additional $4 trillion in spending cuts or tax increases over the next decade.  The only way such enormous savings can be achieved is by reining in entitlement spending: Social Security, Medicare, Medicaid and ACA.  I will outline one way to do this in my next post!

Keep Squeezing the Budget!

 

Monday’s Wall Street Journal has an Op Ed column by Stephen Moore, “The Budget Sequester Is a Success”, which points out that federal spending has actually shrunk from a high of $3.598 trillion in 2011 to $3.537 trillion in 2012 to a projected $3.45 trillion for 2013.  These spending declines are due to the Budget Control Act of 2011 which accompanied the 2011 increase in the debt limit.  The $100 billion per year budget sequester is a part of that agreement.  The current budget standoff between the Senate and the House is simply an attempt by the Democratic majority in the Senate to renegotiate the spending limits agreed to in 2011.
The sequester will continue to constrain discretionary spending but the two thirds of the federal budget devoted to entitlements is growing at a much faster rate than the overall growth of the economy.  The way out of this dilemma should be obvious to any rational, impartial observer.  We need to slow down the growth of entitlements and speed up the growth of the economy.  But this is much easier said than done!
Democrats will apparently not agree to do either of these two things.  Reining in entitlements takes political courage and the Democrats would rather be able to accuse Republicans of cruelty to the poor and the elderly than to actually address this problem in a serious manner.  Growing the economy faster will require appealing to investors and risk takers, with lower tax rates, for example, as well as loosening anti-business regulations.  Measures like these go against liberal ideology.
While we’re waiting for common sense to prevail in Washington, what more can be done to shrink still very large deficit spending?  There are all sorts of wasteful, duplicative and ineffective federal programs out there.  Fiscal conservatives should just keep going after them, one-by-one, and whittling them down.  Millions of voters and taxpayers will be thankful for this.