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Monday, February 08, 2010

It's time to be up front about our looming deficits

Robert Samuelson writes what many are saying. Our politicians need to recognize that the real source of our deficit problems are the entitlements.
First, from 2011 to 2020, the administration projects total federal spending of $45.8 trillion against taxes and receipts of $37.3 trillion. The $8.5 trillion deficit is almost a fifth of spending. In 2020, the gap is $1 trillion, again approaching a fifth: Spending is $5.7 trillion, taxes $4.7 trillion. All amounts assume a full economic recovery; all projections may be optimistic. The message: There's a huge mismatch between Americans' desire for low taxes and high government services.

Second, almost $20 trillion of the $45.8 trillion of spending involves three programs -- Social Security, Medicare (health insurance for those 65 and over) and Medicaid (health insurance for the poor -- two-thirds goes to the elderly and disabled). The message: The budget is mainly a vehicle for transferring income to retirees from workers, who pay most taxes. As more baby boomers retire in the 2020s, deficits would grow.

Third, there is no way to close the massive deficits without big cuts in existing government programs or stupendous tax increases. Suppose we decided to cover all future deficits by raising taxes. Taxes would rise in the 2020s by roughly 50 percent from the average 1970-2009 tax burden.

That's the guts of it. At age 65, average Americans live for another 18 years. Government now subsidizes each of them an average of about $25,000 a year (almost $14,000 Social Security, $11,000 Medicare). We cannot sensibly afford all these subsidies without oppressive tax increases (see above), deep cuts in defense and other programs or immense budget deficits that someday might trigger another financial crisis. Bond buyers might balk at swallowing so much government debt. By the administration's estimates, that publicly held debt (the accumulation of all annual deficits) balloons from $5.8 trillion in 2008 to $18.6 trillion in 2020.
It would be an economic killer to try to pay for all of this through taxes. We can't keep transferring so much of our nation's wealth from workers to senior citizens. We have to get real about this, but our political system seems to prevent any sort of common sense on the situation.


LarryD said...

The Democrats won't even discuss means-testing, which is a painless way to cut Social Security.

Me, I've never counted on Social Security being there, my planning doesn't even incorporate it (except for taxes). And I'm already sixty.

Bachbone said...

When Alan Greenspan headed a blue ribbon commission in 1983 to find a solution to the Social Security problem, the basic recommendation was to raise taxes and cut benefits. No politician has the guts to do the latter, so look for future solutions to raise taxes again, and raise the age at which benefits can be taken.

tfhr said...


My current prediction regarding the date upon which I may begin drawing Social Security is age 51. Of course, that is 51 in my next life. Fortunately reincarnation will save Social Security for me in my next life since I have no hopes of seeing any in this life. Now I just have to hope that I come back as someone in the United States illegally so that I don't have to pay into the system prior to drawing benefits.