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!
