Good link below that explains something I hadn't fully understood: the short term variances in budgetary deficit projections have nothing to do with the long term impacts of our current debt (nor our GDP growth rate). According to this article, it's all demographics. That's the "key" that I was missing.
Out of curiosity, does anyone know if other major economic powers are bypassing the "baby boomer" demographic problems written about below? Also, will the flood of cheap labor into country help a little with the demographic problem?
Below is the link if anyone is interested and an excerpt from the article:
http://www.theatlantic.com/issues/2004/01/littlefield.htm
The long-term imbalance between the amount of taxes that Americans are accustomed to paying and the level of government services that Americans are accustomed to receiving will not, however, be changed by any alterations in short-term projections. Under any reasonable set of assumptions about economic growth, the natural growth rate of health-care costs, and other important factors, the gap between what we expect to pay and what we expect to receive is enormous. The magnitude of this looming gap has been masked for the past several decades by a demographic blipâthe Baby Boom, which for nearly forty years has provided a large base of workers who contribute payroll and income taxes while consuming relatively few government services. In 2012, however, when the first Boomers hit retirement age, the situation will begin to reverse: a large proportion of the population will begin drawing more heavily on government services, while the relative number of taxpaying workers will start to shrink. Today there are nineteen elderly for every 100 working-age Americans; by 2050 there will be thirty-five for every 100. This means trouble: in 2015 Medicare taxes will fall short of Medicare expenditures for the first time; in 2018 Social Security payments will outstrip payroll-tax revenues. In short, if we don't make policy changes soon, the government's financial situation will begin imploding within the next ten years.
The implications are profound: by 2050 the very nature of the federal government may be radically different. At the extremes the country has two basic options. One is to retain Social Security and Medicare as broad middle-class entitlements, maintain Medicaid, hold defense spending near present levels (about 3.5 percent of GDP), and keep the rest of the government at its current size. In this scenario federal spending would grow from 19.5 percent of GDP today to 39.7 percent in 2075, resulting in a government proportionally larger than Germany's or France's. To fully cover a U.S. government of this size, lawmakers would need some way to permanently increase tax revenue by 70 percent a yearâbeginning today.
The second option is to hold taxes near current levelsâthey have ranged from 17 to 20 percent of GDP every year since 1960âwhile ending entitlements as we know them. If we decided that we wanted to keep taxes relatively constant, we would need to cut Medicare, Medicaid, and Social Security benefits in half immediately; if we waited longer to act, the cuts in those programs would have to be even deeper. The social impact of such cuts could be mitigated by, for example, subjecting Social Security and Medicare benefits to a means test, so that benefits would be reduced more (or entirely) for affluent citizens; compared with across-the-board benefit reductions, this would hold down increases in poverty and poor health among the elderly. But any cuts of this magnitude would still be likely to increase poverty, make three-generation households more common (as some seniors were forced to move in with their children), and perhaps even reduce the average American life-span, since many poor and elderly people would no longer be able to afford medical care.
Out of curiosity, does anyone know if other major economic powers are bypassing the "baby boomer" demographic problems written about below? Also, will the flood of cheap labor into country help a little with the demographic problem?
Below is the link if anyone is interested and an excerpt from the article:
http://www.theatlantic.com/issues/2004/01/littlefield.htm
The long-term imbalance between the amount of taxes that Americans are accustomed to paying and the level of government services that Americans are accustomed to receiving will not, however, be changed by any alterations in short-term projections. Under any reasonable set of assumptions about economic growth, the natural growth rate of health-care costs, and other important factors, the gap between what we expect to pay and what we expect to receive is enormous. The magnitude of this looming gap has been masked for the past several decades by a demographic blipâthe Baby Boom, which for nearly forty years has provided a large base of workers who contribute payroll and income taxes while consuming relatively few government services. In 2012, however, when the first Boomers hit retirement age, the situation will begin to reverse: a large proportion of the population will begin drawing more heavily on government services, while the relative number of taxpaying workers will start to shrink. Today there are nineteen elderly for every 100 working-age Americans; by 2050 there will be thirty-five for every 100. This means trouble: in 2015 Medicare taxes will fall short of Medicare expenditures for the first time; in 2018 Social Security payments will outstrip payroll-tax revenues. In short, if we don't make policy changes soon, the government's financial situation will begin imploding within the next ten years.
The implications are profound: by 2050 the very nature of the federal government may be radically different. At the extremes the country has two basic options. One is to retain Social Security and Medicare as broad middle-class entitlements, maintain Medicaid, hold defense spending near present levels (about 3.5 percent of GDP), and keep the rest of the government at its current size. In this scenario federal spending would grow from 19.5 percent of GDP today to 39.7 percent in 2075, resulting in a government proportionally larger than Germany's or France's. To fully cover a U.S. government of this size, lawmakers would need some way to permanently increase tax revenue by 70 percent a yearâbeginning today.
The second option is to hold taxes near current levelsâthey have ranged from 17 to 20 percent of GDP every year since 1960âwhile ending entitlements as we know them. If we decided that we wanted to keep taxes relatively constant, we would need to cut Medicare, Medicaid, and Social Security benefits in half immediately; if we waited longer to act, the cuts in those programs would have to be even deeper. The social impact of such cuts could be mitigated by, for example, subjecting Social Security and Medicare benefits to a means test, so that benefits would be reduced more (or entirely) for affluent citizens; compared with across-the-board benefit reductions, this would hold down increases in poverty and poor health among the elderly. But any cuts of this magnitude would still be likely to increase poverty, make three-generation households more common (as some seniors were forced to move in with their children), and perhaps even reduce the average American life-span, since many poor and elderly people would no longer be able to afford medical care.
) and above all they create debts and exponential interests to pay at term with taxes since the interest can only cumulate since debts are created at will through Bonds Emission of the FED ! This is the modern way of a feodal system that has adapted to progress haha !