Dark Skinny

From The Congressional Budget Office - The Long-Term Budget Outlook

Executive Summary
As health care costs continue to grow faster than the economy and the baby-boom generation nears eligibility for Social Security and Medicare, the United States faces inevitable decisions about the fundamentals of its tax and spending policies. This Congressional Budget Office report looks at a range of possible paths for federal spending and revenues over the next 50 years and combines them into various hypothetical scenarios. Analysis of those scenarios suggests the following conclusions:

• Driven by rising health care costs and an aging population, spending on entitlement programs–especially Medicare, Medicaid, and Social Security–will claim a sharply increasing share of the nation’s economic output over the coming decades.

• Unless taxation reaches levels that are unprecedented in the United States, current spending policies will probably be financially unsustainable over the next 50 years. An ever-growing burden of federal debt held by the public would have a corrosive and potentially contractionary effect on the economy.

• As the U.S. tax system is currently configured, revenues will increase as a share of gross domestic product. Under current law, taxpayers will face higher rates, with detrimental consequences for work, saving, and economic growth.

• Fiscal policy could be financially sustainable if the growth of health care costs slowed significantly from historical rates. But even in those circumstances, tax revenues would probably need to be higher than they have been in the past.

• If taxation is restricted to the levels that prevailed in the past, the growth of entitlement spending will have to be substantially reduced. Restricting the growth of outlays for defense, education, transportation, and other discretionary programs would not be enough to ensure fiscal sustainability.

• Likewise, economic growth alone is unlikely to bring the nation’s long-term fiscal position into balance. Moreover, issuing ever-larger amounts of debt or dramatically raising tax rates could significantly reduce growth.

“Under current law, the federal budget is on an unsustainable path—meaning that federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds longterm fiscal projections, rising costs for health care and the aging of the U.S. population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits and accumulating debt. Keeping deficits and debt from reaching levels that would cause substantial harm to the economy would require increasing revenues significantly as a percentage of gross domestic product (GDP), decreasing projected spending sharply, or some combination of the two.”

Other References :

• CBO Paints Dire Portrait of Long-Term Revenue Spending –Washington Post

• US on “Unsustainable” Budget Path — CBO says -  MarketWatch

• Budget office: Deficits must be slashed — The Hill

• CBO - The Long-Term Budget Outlook, June 2009 — beSpecific
  

-

The Green Energy Revolution or just more painful Economic Bilge ?