This article is somewhat dated, but it proves the accuracy of their predictions.
Full article @
Fate Worse than Debt: Can the U.S. Deficit Rise to $45.47 Trillion? - Knowledge@Wharton
Fate Worse than Debt: Can the U.S. Deficit Rise to $45.47 Trillion
Published: June 18, 2003 in Knowledge@Wharton
The U.S. government’s future obligations outweigh its projected revenues so heavily that it would need a permanent income tax increase of 66% or the immediate elimination of all federal discretionary spending to put it on track for balancing its finances.
Such is the startling conclusion of a report by Wharton insurance and risk management professor Kent Smetters and Cleveland Federal Reserve Bank economist Jagadeesh Gokhale. The two argue that the government’s accounting system is backward looking and so has failed to properly account for future outlays such as Social Security and Medicare.
Their report, “Fiscal and Generational Imbalances: New Budget Measures for New Priorities,” estimates that the “fiscal imbalance” – existing debt plus future projected deficits – is an enormous $45.47 trillion, expressed in 2003 dollars. That dwarfs the $3.8 trillion debt that the government officially reports. If steps are not taken immediately to correct the imbalance, it will rise to $53.96 trillion by 2008, the report says.
“Because the current structure of Social Security and Medicare involves long-term payment obligations, backward looking or short-term measures such as debt and deficits need to be complemented by long-term forward-looking ones that explicitly measure future payment obligations relative to the resources available to meet them under current laws,” the authors say, adding that adopting backward-looking measures “understates significantly the financial shortfall that the federal government faces under today’s fiscal policies.”
Of this year’s total imbalance, $37.59 trillion, or almost 80%, comes from projected outlays on Medicare, reflecting the rising cost of caring for an ageing population, while Social Security accounts for $7.2 trillion – about a fifth of the Medicare number. Other government spending shows a relatively insignificant imbalance of $676 billion. The Bush administration’s tax cuts, now totaling $350 billion, are even less important in the overall calculation, Smetters said, although he declined to put a number on the tax cuts’ fiscal impact.
The fiscal gap could be even bigger because the Medicare estimate is based on “very conservative health-care growth assumptions,” Smetters noted in a May
Gokhale-Smetters
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