Thursday, October 15, 2009


In little over 10 years, debt held by the public as a percent of GDP under our Alternative simulation is projected to exceed the historical high reached in the aftermath of World War II and grow at a steady rate thereafter.

These fiscal challenges are driven by health care cost growth and demographic trends. Absent reform, Social Security, Medicare, and Medicaid will account for a growing share of the economy in coming years. The longer action to deal with the nation�s long-term fiscal outlook is delayed, the larger the changes will need to be, increasing the likelihood that they will be disruptive and destabilizing.

...While this is similar to the results of previous simulations, the sense of urgency has increased. Beginning in 2009, our Alternative simulation shows persistent annual budget deficits in excess of 7 percent of GDP�levels not seen since the aftermath of World War II.
From a new report by the Government Accounting Office. Using the baseline numbers extending out for 75 years, you would need to raise an additional $37 trillion (5% of GDP) to have the debt/GDP ratio equal what it is today. Using the alternative scenario, that would be $62 trillion. In the baseline model revenues as a share of GDP are 20.2% from 2019 forward; the alternative sets that figure at its 40-year historical norm of 18.3%. Unless you get serious control of spending now, you are looking at much higher taxes going forward, or much higher inflation in the long run.

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