Social Security and Medicare shortfalls driving 97% of 30-year debt
NEW YORK, NY — Congress and the next administration face a large and growing federal debt. The Congressional Budget Office (CBO) estimates that federal debt will surpass 100% of GDP this year and reach 195% over the next 30 years. And even this scenario optimistically assumes no spending expansion, the 2017 tax cuts expire on schedule, and interest rates remain below normal.
As Manhattan Institute (MI) Senior Fellow Brian Riedl posited at an MI eventcast with Harvard Kennedy School’s Jason Furman, “The question really is are we feeling lucky?” Riedl suggests that even interest rate increases of just 1%-2% over the CBO baseline would drive the national debt to between 264% and 333% of GDP over the next three decades.
In a new issue brief, Charting the Fiscal Future: $100 Trillion in Deficits Over 30 Years, adapted from the latest edition of his popular book of charts on federal budget, spending, taxes and deficits, Riedl focuses on the main driver behind the CBO’s Projected $104 Trillion Deficit over 30 Years—Social Security and Medicare shortfalls. The charts show:
- While the cost of discretionary spending and smaller entitlement programs will continue to fall as a share of the economy—and revenues will rise well above their average—Social Security and Medicare costs will continue to rise and are responsible for nearly all of the projected debt increase ($101 of the $104 trillion).
- By 2050, the Social Security and Medicare systems will run a shortfall equal to 14.2% of GDP (including interest costs), while the rest of the budget will be running a 1.5% surplus as a share of GDP.
- Between 2020 and 2050, the Social Security system will collect $52 trillion on payroll and benefit taxes but spend $73 trillion in benefits (and cost $12 trillion in interest).
- Between 2020 and 2050, Medicare will collect $17 trillion in payroll taxes and other trust-fund revenues but spend $60 trillion in benefits (and cost $27 trillion in interest).
Alleviating the pandemic and recession must remain the top immediate economic priorities, even if that means short-term spending. But sooner rather than later, the U.S. will have to address the unsustainable soaring debt. A 2018 report by Riedl offers a starting point with a four-tiered approach focusing on 1) addressing inefficiencies from major health programs, 2) trimming Social Security and Medicare benefits for upper-income retirees, 3) trimming other federal programs to the extent feasible on a bipartisan basis, and 4) closing the remaining gap with new taxes in the broadest and least-damaging manner possible.
For more information on Brian Riedl’s debt analysis or to arrange an interview, please contact firstname.lastname@example.org.
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