The Biggest Budget Buster
The Wall Street Journal, December 13th, 2007
The nation's economic outlook may look troubling in
the short run, but these difficulties pale beside the economic
consequences that will follow if we don't address the nation's
long-term fiscal gap -- or the prospective mismatch between projected
spending and revenues.
The fiscal gap does not arise, as many believe,
primarily from the coming retirement of the baby boomers. Rather, the
rate at which health-care costs grow will be the primary determinant of
the nation's long-term budget picture.
A congressional hearing tomorrow will focus on new
long-term budget projections from the Congressional Budget Office. CBO
projects that under current law, federal spending on Medicare and
Medicaid measured as a percentage of gross domestic product will rise
to 12% in 2050 and almost 20% around 2080 from 4% today. The bulk of
that projected increase arises from steadily growing health-care costs
per beneficiary.
The aging of the population, although a less important
factor, will exacerbate the fiscal pressures created by rising
health-care costs. For example, largely reflecting demographic changes,
spending on Social Security in 30 years will increase to 6% from about
4% of GDP today, and then roughly stabilize thereafter.
Such increases in spending associated with both aging
and increased health-care costs -- unless matched by significant
reductions in other spending or increases in revenues -- would
ultimately create outsized budget deficits that would raise government
debt to unprecedented levels.
Read more of this article.
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