Federal debt that shrank by 1980 to 35% of GDP doubled to 70% under Reagan and Bush-1. It dropped under Clinton, rose from $6T to almost $10T under Bush-2 and was rocketing up by the end of his term. It has reached 90% under Obama. Why?
2011 revenue (i.e., taxes) dropped to 76% of its 2001 level as a % of GDP because tax rates were cut and the Great Recession cut the income on which tax is levied. Our nation would be better off if we could collect more from high-income individuals and large corporations that currently pay very low or no taxes but the even greater challenge is to restore growth.
The expense side is more interesting. Discretionary non-security spending (education, etc) was flat. Discretionary security spending, however, leaped to 174% of its 2001 level while spending that grows unless there are legislative changes grew to 132% of a decade earlier.
The current debate about the Federal deficit is focused chiefly on “entitlements”, the spending that grows unless there are legislative changes. What are their trends? Where do we need to take action?
Social Security spending is rising at a modest rate. As noted in a previous post, because our population is aging the ratio of retired workers to those still working is dropping, which means we must raise the eligibility age and make other incremental changes. Those changes have been made before and would straightforwardly fix the problem. The big challenge is healthcare spending.
Healthcare spending is impacted by aging just as social security is; more of the population is eligible for Medicare. But their trend lines are very different. Healthcare spending is growing much faster because its costs are inflating. We could cut Medicaid and Medicare to shift more of the cost to individuals, we could increase Medicare taxes to cover the unfunded prescription drug benefit introduced by Bush-2, we could make many changes to who pays what percentage of the costs.
But more important even than getting rising Federal healthcare spending under control is to get rising health care cost under control. As noted in previous posts, we spend double what other advanced economies do on healthcare without getting better results.
The primary cause of the rocketing increase in the deficit in the past decade is not being discussed at all in the current debt ceiling unreality show. Reagan greatly increased our military spending to break the USSR. Bush-2 greatly increased it for discretionary wars in Iraq and Afghanistan and Obama increased it yet more. Supplying our troops in Afghanistan is gigantically expensive because Afghanistan has no seacoast and is surrounded by nations that are not our friends. Below is the CBO projection of the impact of reducing deployments in Afghanistan and Iraq.
My apologies for the hiatus in postings. I still have some distracting projects that must be completed but took a short break to post this because our economy is a mess, the problems we must fix are being obscured and the solutions we’re being offered will not set us right.
It is very, very tempting to rant. I really don’t want to be thinking about these issues. I want a government that does.