Federal budget deficit to balloon

The federal deficit is expected to more than double to $1 trillion next year, but budget experts concerned about the fiscal impact of Social Security, Medicare and Medicaid think 2009 will be remembered as the good old days.

Now that the first of the nation’s 76 million baby boomers have reached age 62 and begun to collect their Social Security checks, the demographic time bomb no longer seems such a distant threat. Indeed, baby boomers will begin filing Medicare claims in 2011, just as the next president begins his campaign for a second term.

Judged by the proposals of Sen. John McCain, Arizona Republican, and Sen. Barack Obama, Illinois Democrat, to address the potentially catastrophic fiscal explosion, neither presidential candidate seems prepared to deal with the long-term fiscal tsunami that has been gathering force for years.

“If they implemented their policies as stated, they would make the deficit and the national debt problems worse,” said David Walker, the former comptroller general who headed the Government Accountability Office (GAO). “My hope is that the winning candidate has an epiphany,” he told The Washington Times.

“Beyond the current crisis, the biggest economic question facing the candidates is the threat to the long-term fiscal health of the country caused by changing demographics and soaring health care costs,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget. “What is striking in the presidential campaign is the notable absence of a discussion about how to address these long-term challenges.”

Because the candidates are focusing on the current economic crisis, “they’re not talking about the long-term entitlement problems,” said Diane Lim Rogers, chief economist of the Concord Coalition, a nonpartisan organization concerned about the challenges facing America’s unsustainable entitlement programs. “They have not got very specific. They rarely bring up Medicare and Social Security in their speeches today except to criticize the other’s proposals.”

Addison Wiggin, executive producer of the debt documentary “I.O.U.S.A.” and co-author of a prescient 2006 book, “Empire of Debt: The Rise of an Epic Financial Crisis,” said he is “greatly disappointed by the fact that the candidates won’t discuss the entitlement crisis before the election. They won’t talk about it because they can’t get votes that way. They’re getting a free pass.”

Long-term budget challenges

The Congressional Budget Office’s latest annual report examining “The Long-Term Budget Outlook” details the problem. The CBO reported that federal spending on the three largest entitlement programs (Social Security, Medicare and Medicaid) was on track to increase from 8.4 percent of gross domestic product in 2007 to 18.1 percent in 2050 and 25 percent or more in 2082.

Although Social Security today is significantly larger than Medicare, the retirement program’s long-term problems are relatively manageable compared to those of Medicare, the health care program for the aged.

Social Security outlays, which hovered around 4.4 percent of GDP in 1987 and 2007, are expected to stabilize slightly above 6 percent in 2050.

Medicare spending, however, is projected to increase from 1.6 percent of GDP in 1987 and 2.7 percent in 2007 to 8.9 percent in 2050 and 14.8 percent in 2082.

Federal spending on Medicaid, the health care program for the poor, would rise from 0.6 percent of GDP in 1987 and 1.4 percent in 2007 to nearly 4 percent in 2082.

In its baseline scenario, which assumes that President Bush’s 2001 and 2003 tax cuts are allowed to expire at the end of 2010 and that revenues from the alternative minimum tax (AMT) are allowed to soar, ravaging the middle class, CBO projects the budget deficit would exceed 18 percent of GDP in 2082. That’s about triple the share of GDP that a $1 trillion deficit would command this year.

Under more realistic scenarios, which would prevent the AMT from affecting more middle-class households (as Mr. Obama and Mr. McCain say they would do) and extend many (Mr. Obama) or nearly all (Mr. McCain) of the Bush tax cuts, then the deficit would be far higher - so high, in fact, that CBO’s model (and the economy) would implode long before 2082 arrived.

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