Will the US still have a spending problem in 2040?
The GAO just released its update of . This shows federal spending (the bars) and revenue (the line) under GAO鈥檚 鈥渁lternative鈥� scenario, which is closely related to the which assumes鈥搈ore pessimistically but probably more realistically than current law鈥搕hat most of the expiring tax cuts are extended and that discretionary spending grows at the same rate as the economy (GDP) rather than only with inflation.
Just by the way, note that the President鈥檚 proposed budget is much closer to this 鈥渁lternative鈥濃�揳nd to the higher associated deficits鈥搕han to current law. (More on that point and elaborating on about soon.)
My immediate interest in putting up the chart above from the GAO report is that many people like to point to this picture (or very similar pictures) as evidence that the current deficit and longer-term fiscal gap is a 鈥渟pending (only) problem鈥� and not a revenue problem. The revenue line doesn鈥檛 droop after all, even in this worse-if-not-worst case scenario where current deficit-financed tax cuts are permanently extended. And the spending bar just keeps on growing.
But note by 2040 we will only be collecting enough revenue to cover the costs of net interest and not quite all of Social Security. Note that we don鈥檛 have a choice about cutting out net interest as long as we鈥檝e continued accumulating the debt that interest pays for. Note that net interest is by far the fastest-growing component of spending and comes to dominate not just Social Security but both all of discretionary spending (actually, all other spending besides the programs mentioned) and Medicare and Medicaid combined. And note that even if it is judged by many to be a 鈥渟pending problem鈥� (only or mostly), it鈥檚 nearly impossible to imagine squeezing all the spending our society will still view as essential over the next few decades under that very low (but 鈥渉istorically average鈥�) revenue line鈥搊r how we will decide what doesn鈥檛 make the cut, when the wiggle room beyond net interest is so very tiny and getting smaller by the minute.
------------------------------
海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
