Dec 28, 2009
The work of the Committee on the Nation’s Fiscal Future has shown that if there is one thing that people of widely divergent political and ideological views can agree on, it’s that we must do something soon to alter the nation’s fiscal course. For many years, the federal government has been spending far more than it collects in revenues, and unless we change course, the mismatch between revenue and spending will grow even faster.
While the recent economic downturn has complicated the fiscal challenge, the real problem is the much larger long-term discrepancy between revenue and spending for three major programs: Medicare, Medicaid and Social Security. In a normal year unaffected by a gargantuan stimulus program, those three programs already account for almost one-half of all federal spending (excluding interest on the debt). In about 30 years, if new revenues are not raised and the programs are not modified, those three programs alone will consume all available federal revenues.
Medicare and Medicaid have been growing faster than either revenues or the economy for some time, driven by enhanced benefits, rapid growth of health care costs, and the aging of the U.S. population. Social Security spending will grow faster than the economy in the near future as “Baby Boomers” retire. The challenge posed by this growth in spending will be compounded by the projected slowing growth of the labor force that is a direct result of the Baby Boomers not having enough kids to support them well in their old age.. The number of people who receive retirement and health benefits through federal programs will increase just as the growth of revenue from income and payroll taxes slows down.
If no action is taken to constrain or offset the growth of Social Security, Medicare, and Medicaid; if tax rates stay near their current levels; and if other programs are held at their current share of the US economy – then the federal debt, deficits, and interest costs will explode over the long term. In 75 years, the federal debt would be more than seven times the nation’s GDP.
There are many possible solutions to our long-term challenge, and the Committee has described a range of alternatives that can set America on a sustainable fiscal path. If we take action soon, many of these are less drastic than sometimes suggested. Nevertheless, the Committee recognizes that deeply held values are the lenses through which people will view and choose among these and alternative solutions. Any effort that hopes to succeed, therefore, must be rooted in the common values of fairness, economic opportunity, and personal and family security that Americans hold dear. Yet even people who share common values may disagree on what they want government to provide, what they believe government can deliver, and what role government should have in the economy.
We know that setting aside other pressing priorities now to address an abstract fiscal challenge is asking a great deal of both leaders and the public. But the costs of delay are potentially enormous. The U. S. standard of living will be eroded gradually as the economy recovers and the budget deficit draws off saving that would be better used to increase domestic investment and reduce our liabilities to foreigners. If foreign and domestic investors lose confidence that we can restore fiscal stability, interest rates will soar, further worsening the budget outlook. A vicious circle of rising deficits, worsening interest rates, and still larger deficits may collapse into a financial maelstrom that makes recent financial problems look mild by comparison.
All of the goals that people value and pursue through their government are already hostage to finding a politically feasible way to address the looming fiscal challenge. We hope this report, and the range of possible solutions presented in it, will be a starting point for a respectful and serious public dialogue about the choices and compromises that Americans must make together.