Robert Samuelson, the author of “The Great-Inflation and its Aftermath,” writes in the July 20 issue of Newsweek that balancing the budget in 2020 would require a walloping tax increase of almost 50 percent from the past half century's average.
Looking to some of the grim arithmetic set forth in a new report from the Congressional Budget Office (CBO) entitled "The Long-Term Budget Outlook," the author calls the figures “daunting.”
For the past half century, he notes, federal spending has averaged about 20 percent of GDP, federal taxes about 18 percent of GDP, and the budget deficit 2 percent of GDP.
Meanwhile, the CBO projection for 2020, which optimistically assumes the nation’s economy has regained full employment, notches spending at 26 percent of GDP, taxes at just less than 19 percent of GDP, and a deficit above 7 percent of GDP. Future spending and deficit figures continue to spiral up after 2020.
“What this means is that balancing the budget in 2020 would require a tax increase of almost 50 percent from the past half century's average,” Samuelson ominously concludes. “To get from 18 to 26 percent of GDP (spending in 2020) would require another 8 percent of GDP in taxes. In today's dollars, that would be about $1.1 trillion, a 44 percent annual tax increase.”
In 2000, Social Security, Medicare, and Medicaid totaled nearly 8 percent of GDP, he warns. By 2020, the CBO projects that figure will reach almost 12 percent of GDP - and continue to increase.
Meanwhile, the CBO is sounding the clear warning that the ever-growing deficits will in the end penalize saving, investment, and income - while unprecedented tax burdens could "slow growth in the economy, making the [government's] spending burden harder to bear."
Instead of getting to the hard questions and answers, Samuelson decries that tough solutions have simply stalled at the politically expedient: Republicans want to cut taxes without cutting spending, while Democrats want to increase spending without increasing taxes - except on the rich.
“Hardly anyone asks the hard questions of who doesn't need benefits, which programs are expendable, and what taxes might best cover remaining deficits,” he laments.
As to President Barack Obama, the author opines that he is steering things in a manner that can only make the dire situation worse.
“He talks about controlling entitlement spending but hasn't done so. He's proposing just the opposite. His health-care proposal would increase federal spending. He says he will ‘pay for’ the added outlays with tax increases or other spending cuts, but what people forget is that every penny of this ‘payment’ could be used - and should be - to close the existing long-term deficit.”
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