Lately, everyone seems in agreement that the federal government is borrowing too much money. If you are in the Obama camp, maybe you agree with Christina Romer’s theory that makes the government sound more like a dependant drug addict. One of the things I want to examine today is a study that was conducted by the CBO (Congressional Budget Office) that projected the federal budget out to the year 2075.
According to the above chart, total government spending as a percentage of our GDP has remained relatively flat around 20% over the past four decades. However, as you can see from the trends, the percentage of GDP for entitlement spending tripled over that same period. Entitlement spending also became a much larger chunk of the federal budget.
According to the same study, spending was expected to explode over the next several decades.
Instead of government spending being 20% of GDP, entitlements are projected to pass the 15% of GDP mark in about two decades. Combining the long-term entitlements costs with high borrowing (and interest payments), the federal government’s budget was projected to be 40% of GDP by 2075.
Here’s the startling surprise, this study was done in 2001, nearly ten years ago.
What was the projected deficit for 2010 according to this study? The answer is $180 billion.
What was the actual deficit for 2010? The answer is more than ten times the projection.
The truth of the matter is that these numbers are creeping on us faster than we anticipated. Federal government spending of GDP was 35% in 2008, nearly as high as the estimates for 2070! Even President Obama’s own budget has entitlement spending plus the interest on the debt equally 70% of all federal spending by 2014.
So whose idea was it to have Social Security, Medicare, Medicaid, “Income Security,” and to finance all this by borrowing? It was the same type of people who are currently in control of government. These same people now want us to pass a new entitlement program that does absolutely nothing to solve the cost problems associated with the ones they created over the past 70 years.
It’s quite obvious that if this increase in spending is going to happen, the only way it is successful without total collapse is with extremely higher taxes. Do you have extra money lying around? Are you ready to pay 10%, 20%, maybe even 50% more on your federal taxes to prop up these entitlement programs?
The average taxpayer may want to start saving up, Uncle Sam’s going to need that money sooner or later.
You can read the CBO study here.