May 29, 2003
Long-Run Deficit Numbers
Lance Knobel pounds his head against the wall because finally a newspaper is covering the size of America's long-run deficit problem--the problem that George W. Bush has done so much to revive in such a short time:
Posted by DeLong at May 29, 2003 11:39 AM | TrackBackDavos Newbies Home: Big number
Here's a big number: $44,200 billion. That's what the chronic federal budget deficits will total thanks to the Bush administration according to a report from the US Treasury.
But in keeping with the administration's commitment to honesty and openness, the study was quietly left out of the annual budget report in February.
Eat, drink, and be merry, for today we live....
or, maybe better yet....in the immortal words of Alfred E. Neuman:
What, me worry?
Posted by: section321 on May 29, 2003 12:32 PMNot surprisingly, the White House is contesting the implication that the report was buried, and probably wins the argument. One of the original report's authors offers reasonable explanations for its exclusion from the White House budget:
http://www.usatoday.com/money/economy/2003-05-29-deficit-report_x.htm
How can the Treasury win the argument when its spokesman--Rob Nichols--tells bald-faced lies?
Posted by: Brad DeLong on May 29, 2003 12:50 PM
why aren't people saying trillion?
I Keep seeing this 44,000 billion number. It's weird.
what are you talking about, it's only .00004 gajillion dollars!!
Posted by: i am not an economist on May 29, 2003 01:18 PMInteresting that it appears in a British rag and not the American press. Think most Americans will notice?
While the figure is an interesting exercise, it is unimaginable that US fiscal policy would not reverse course before it reached that point. $2 trillion debt service costs are not going to happen soon.
From my side of the pond, that is "only" 44 billion (44.E12 in old FORTRAN notation).
DSW
KHarris writes:
>
>Not surprisingly, the White House is contesting the
>implication that the report was buried, and probably wins
>the argument. One of the original report's authors offers
>reasonable explanations for its exclusion from the White
>House budget:
[snip usa today url]
The problem I have with these reasonable explanations is that they apparently cam after his previous story, which
you can read more about here:
http://www.nytimes.com/financialtimes/business/29FT-DEFICITS.html
[yeah, that's apparently the nytimes version of the FT article] Anyway, this is the key quote:
#The analysis was spearheaded by Kent Smetters, then-
#Treasury deputy assistant secretary for economic policy,
#and Jagdessh Gokhale, then a consultant to the Treasury.
#Mr Gokhale, now an economist for the Cleveland Federal
#Reserve, said: "When we were conducting the study, my
#impression was that it was slated to appear [in the
#Budget]. At some point, the momentum builds and you
#think everything is a go, and then the decision came down
#that we weren't part of the prospective budget."
Ouch. Now, later, Gokhale suggests that the inconvenient study just kinda got lost in the shuffle of Treasury Secretaries. I do not find this especially convincing. Given that O'Neill was sacked, you could argue that the new folks were not as interested in this piece of work as the previous crowd. They did not, however, replace the analysis with anything in the budget (and caught heat for *not* doing the usual, full going forward analysis).
In other news, five-year treasury yields reached a new multi-year low today at 2.259%. I believe that is below the expected inflation rate for 2003, which is interesting I guess if not that meaningful.
Posted by: Jonathan King on May 29, 2003 01:22 PMSerious question here, I would like to hear your thoughts: If it were conclusively proven the administration put the economy in the tank in order to advance a political agenda, could that be construed as an impeachable "high crime"?
In this age of corporate malfeasance, are we going to hold our political leaders to the same standards of law we hold Wall Street to (or purport to)?
Posted by: jp on May 29, 2003 01:23 PM>If it were conclusively proven the administration put the
>economy in the tank in order to advance a political
>agenda, could that be construed as an impeachable "high
>crime"?
Historically, "high crimes" has probably meant whatever anybody wanted it to. The problem with your thought experiment, though, is that the administration has done basically nothing to achieve the goal you submit without the cooperation of Congress, and it is impossible for me to imagine the scenario where they would impeach him for anything he merely signed. OK, you could just barely tell a story about this happening after 2006 if Bush is in the White House, and the country is in economic distress so serious that the Republicans lose vast numbers of seats in the House and Senate. I'd worry about other things first.
Posted by: Jonathan King on May 29, 2003 01:35 PMPoints taken.. could you forsee a case where the Bush administration's mangling of the budget forecasts could amount to "abuse of power", however..? It's just like an investment bank providing investors with made-up numbers..
Posted by: jp on May 29, 2003 01:40 PMNo. Congress is responsible for the budget, not the president. The GOP Congress leadership of Hastert, Frist and DeLay are fully complicit and are responsible for ramming through the program without much debate let alone compromise and intimidating those who might be inclined to vote against it.
Posted by: bakho on May 29, 2003 01:58 PMThe only rational explanation for our present
budget course is a WILLFULL attempt to DO IN
Social Insurance. SS and Medicare. The Neocons
in power are NOT overlooking anything. Its all by design. Most all Conservatives in power have
financial security well beyond SS. They would also love to continue their private health insurance after they turn 65. When Republicans
say SS is "pay as you go" that means massive default on the 3 trillion of US securites presently held in the trust fund around 2015.
Silencio: I think that this might be the reason, seeing as how it comes from Britain.
Actually, since it comes from Britain, I highly suspect what the actual number might be; could be off by 3 orders of magnitude in either direction. When do we get to see this actual report?
Posted by: Stoffel on May 29, 2003 02:13 PMSorry, dog ate my hyperlink:
THIS was the "this" I meant.
OK! I get it! No hyperlinks! Sheesh.
http://c2.com/cgi/wiki?BritishBillion
Any attorneys in the house? Is there any precedent for beginning impeachment proceedings against the Congressional leadership for financial mismanagement?
Posted by: jp on May 29, 2003 02:19 PM>If it were conclusively proven the administration put the
>economy in the tank in order to advance a political
>agenda, could that be construed as an impeachable "high
>crime"?
Look at the poll numbers. The people want this political agenda. How can you suppose that doing the will of the people is a high crime?
Bush leads by a 15% landslide over any likely Democrat challenger. That's all the endorsement his tax cut and budget management will ever need. The people want this kind of budget and that's that.
Posted by: Newt on May 29, 2003 03:15 PM"Look at the poll numbers. The people want this political agenda. How can you suppose that doing the will of the people is a high crime?"
The public wants what the right-wing "Wurlitzer" tells them to want. I read that 22% of the public gets all their news from AM talk shows now.
I drove aross the country last year and once you get away from the coasts it is ALL Limbaugh, etc. on the radio, and no PBS on FM. Many towns have only Fox on their cable systems. Many of the local papers are hard right.
So all they are hearing is that these tax cuts will make revenue grow - that it doubled after Reagan's cuts. They are told that cutting government spending creates jobs. They are told that corporate taxes are the reason for layoffs. Stuff like that. Limbaugh even "proves" that higher deficits make interest rates go DOWN.
Posted by: IssuesGuy on May 29, 2003 03:46 PMI think you're confusing voter apathy and voter wants. Why should the Average Joe/Jane, who’s probably unaware of the long-term consequences of this tax "cut" and not particularly interested in worrying about savings rates in 2010, get excited one way or another? His/her tax bill will barely move, especially if all federal, state and municipal taxes are viewed as a bundle.
This Administration, and its crack squad of image consultants, is banking on it for 2004. Time for another carrier landing!
Posted by: Stephane on May 29, 2003 03:56 PMIt may not be entirely clear to people that this $44 trillion number is the present value of the gap between current law benefits and revenues in perpetuity. $36 trillion comes from Medicare and the rest comes from Social Security. There is, therefore, no relationship between recently enacted cuts in tax rates and the size of the funding gap.
Furthermore, some two-thirds of the gap comes beyond 75 years in the future. In other words, only one-third falls within the 75-year planning horizon normally used by actuaries.
I would use this analogy. If I drive West from Washington, DC long enough, eventually I will drive into the Pacific Ocean and drown. This may be useful information, but it is no reason to suddenly turn my car around and go East from Washington for fear of falling into the Pacific. I'll just end up in the Atlantic instead.
This sort of study, which has been done many times before, is useful for policy analysis, but let's not get carried away.
Posted by: Bruce Bartlett on May 29, 2003 03:59 PMNewt -- I think you missed my point: Unwitting investors also 'wanted' to make a killing in the stock market, but were forced to rely on ficticous earnings reports and bad 'analysis' by supposed experts. What the public wants is job creation and a revived economy, and that's what this administration is selling them - except it will do no such thing. Instead, it will gut entitlement programs such as Social Security and Medicaid. It's a classic bait-and-switch.
If Worldcom and Enron can be made to pay for their lies, why not members of Congress and the administration?
Posted by: jp on May 29, 2003 04:28 PMthanks, Stoffel
good url, clear yet confusing.
I have actual economics questions -- nonpartisan, and I don't propose any answers of my own:
We've all read here and elsewhere that it is expectations of future deficits, rather than current deficits, that drive up interest rates. E.g.:
"At first sight the sceptics are right: the evidence is inconclusive. Fewer than half of the studies (28) found that higher deficits increased interest rates significantly. Nineteen studies found no significant effect and 11 had mixed results. However, Mr Gale and Mr Orszag argue that only 17 of these studies included a careful measure of expected future deficits ... The authors conclude that a projected rise in the budget deficit ... raises long-term interest rates ... [etc.]"
http://www.j-bradford-delong.net/movable_type/archives/001461.html
OK, I buy that, and we *all* know the order of magnitude of the deficits we are facing in the future, even within the life of outstanding long bonds (and regardless of the details of this buried study), whether the actual number turns out to be $30 trillion, $40 trillion, whatever. So questions that come to mind are...
[] On an accrual basis -- the real accounting method that everyone but the government uses -- tens of trillions of dollars of this debt have already been incurred (for promised but unfinanced Social Security and Medicare benefits, etc.). Have we already seen the effect of this on interest rates, or if not why not? Why should the mere act of memorializing these obligations with bonds in the future under the govt's cash basis accounting method have an effect on rates, since that won't change anything that anyone already knows about the scope of the obligations and real accrued debt in present or future?
[] Since we all expect a really big mountain of debt is coming our way at a foreseeable time one way or another, why isn't it having more effect on rates already? Is there some intermediate time frame when expected deficits have their impact? I mean, most studies cited above say a current deficit increase doesn't have an effect on rates, but a projected deficit increase does, but apparently a deficit increase projected even with certainty too far out doesn't. (Which is understandable given discounting effects.) What's the magic (or ominous) intermediate moment?
[] When we are facing something on the order of $40 trillion of future debt, would a current tax law change affecting it one way or the other by a mere $1 trillion or so be expected to have a notable effect on rates?
Back to policy argument...
"It estimates that closing the gap would require the equivalent of an immediate and permanent 66 per cent across-the-board income tax increase."
Well, that ain't gonna happen. And that seems to be an immediate increase with the resulting surplus entirely saved, so the longer we delay the bigger the needed tax hike.
A more-than-66% income tax increase across the board is politically impossible (and I'd imagine economically pretty undesirable as well). So that seals it -- it is time for people who are so concerned about these future deficits (and the damaging interest rate increases they will cause) to start coming up with ideas for reducing promised government spending. There's going to be no way around it in closing this budget cavern even with maximum politically possible tax increases. The sooner it starts the less will be necessary, so let's get cracking on it.
I propose we start by squeezing Warren and Bill out of their Social Security and Medicare benefits, and put the squeeze on similar poor-to-rich transfers that are embedded in all our social spending promises. Warren and Bill's employees have done enough to make them rich. I guess Warren's getting old now, but Bill's employees shouldn't have to run into a >66% tax increase on top of it all to keep his transfer benefits whole. It's the progressive thing to do. Next idea?
Jim, The Fed sets the interest rate depending on how much inflation they want to control. Of course we are near the liquitdity trap so interest rates are low and will remain so until unemployment drops and wage inflation threatens.
If the government overstimulates the economy by running deficits, the Fed raises interest rates. The Fed is THE link between deficits and interest rates. What deficits do is diminish national savings. That is the problem with running deficits.
Posted by: bakho on May 29, 2003 06:45 PMEven though the Bush tax cuts are relatively inefficient economic stimulus, if the deficits run high enough, eventually it will stimulate the economy and unemployment. However, what will be the final cost?
Posted by: bakho on May 29, 2003 07:00 PMBruce Bartlett writes:
>
>I would use this analogy. If I drive West from Washington,
>DC long enough, eventually I will drive into the Pacific
>Ocean and drown. This may be useful information, but it
>is no reason to suddenly turn my car around and go East
>from Washington for fear of falling into the Pacific. I'll
>just end up in the Atlantic instead.
I think this analogy is flawed for two reasons. First, it is much, much easier to turn a car around then it is to turn around and fight *anything* that grows exponentially. Second, the alternative to speeding towards the Pacific is not necessarily careening around and splashing into the Atlantic, but just not going anywhere. Maryland is a very pretty state. :-) I have to admit that Greenspan himself raised the "spectre" of there not being enough government debt around to satisfy market needs if we paid off the deficit too soon, but we all now know just how silly an idea *that* was.
For what it is worth, I do respect your point that the 44 trillion dollar cost quoted does largely depend on the distant future. I would add, however, that even the annual interest on a much smaller number (say 4 trillion) is enough to have a tremendous impact in the near term (say 20 years). Herbert Stein did say that something that cannot continue forever will stop. I think it is safe to say that we will not reach the future where we are absolutely bankrupt, but that doesn't make our near term choices any prettier.
Posted by: Jonathan King on May 29, 2003 07:41 PMOy. Kotlikoff and Gokhale are back to perpetrating their fraudulent "generational accounts." Somebody should smack them upside the head with a 10 pound codfish. Dean Baker did a report for EPI taking their nonsense apart: "Robbing the Cradle? : A Critical Assessment of Generational Accounting." (0-944826-63-6, 1995)
Oh, goodness me! If we keep running massive deficits like this, interest rates will go sky high! Why, we might end up like Japan, with the highest debt/GDP ratio ever recorded, and... 0% interest rates.
Hmm. Something not right there...
Posted by: jimbo on May 29, 2003 08:35 PMI don't understand a couple of comments on the generational account story. Some call this fraudulent accounting or accusing the Financial Times of not understanding U.S. fiscal policy. The Bruce Bartlett comment was simply that the time horizon goes 75 years. Both miss an important point. When Wall Street values a firm - does it not do so on the present value of expected future cash flows? This is all generational accounting attempts to do. If one thinks the authors have a biased set of assumptions - let them profer their own. The authors suggest their assumptions are conservative so the present value is likely even more negative. And why would anyone disregard this calculation done over a long horizon but talk about the current debt. Aren't these both part of the same long-run issue? Bottom line - their calculation shows that the current fiscal stance is a bankruptcy stance unless changed. And change means either raising someone's tax rates or cutting spending or both - perhaps dramatically. Should we not demand our politicians give us a clue which choice they plan to make?
Posted by: Hal McClure on May 29, 2003 09:18 PMOh, my... so much stuff. Brad, your version of "win" is different from mine. If you can't get the author to squeak about the treatment his research gets, you get away with the treatment. The spokesman even lied when he didn't have to (a tendency you have noted in the past), given that at least one author was willing to make excuses for the report's deletion. Still, the spokesman's response isn't the act itself. In any situation other than preaching to the chior, having an author's ok is going to carry weight.
Silencio,
The FT article was, sadly, written in British English, which tends toward the "1,000 billion" usage in preference to "1 trillion".
Bakho,
The Fed sets the rate at the very shortest maturity, but is less influential at the long end. That is why we have a 2.08% spread on 10s over Fed funds, when at times in the past, the spread has been flat or (if I recall correctly) negative. The question about why rates are so low given the current budgetary outlook is valid. The inflation outlook and the pace of GDP growth (which has implications for GDP growth and credit demand) are generally more powerful than the budget outlook in establishing rates at longer maturities. The inflation outlook is OK and demand for credit not large, which helps explain the low level of nominal rates. As Fed officials keep pointing out, real long rates aren't all that low.
Posted by: K Harris on May 30, 2003 03:51 AMGood point Jimbo but isn't the potential danger of large deficits high real rates, not nominal rates?
Obviously usually these would look similar but a lot of empirical contributions to this debate don't make a distinction. We also saw in recent comments here ABN Amro accepting negative interest rates on Yen deposits to avoid counterparty risk from the Bank of Japan which shows the government paying well above normal sovereign debt even at 0 per cent.
Does anyone have a view on the impact of the difference between having a large current account surplus and budget deficit and having a large deficits in both current account and budget?
Posted by: Jack on May 30, 2003 03:57 AMI don't think there is anything inherently wrong with generational accounting or the Smetters-Gokhale study, which can be accessed at www.ft.com/us. My only concern is with the way the study has been portrayed in the press. The $44 trillion figure is assumed to be comparable to current deficit and national debt figures, when of course they are not.
Posted by: Bruce Bartlett on May 30, 2003 07:17 AMDon't worry too much about the deficit. Bush is an inadvertent environmentalist. The looming long-term fiscal crisis will mean that America and the rest of the world will be less prosperous than they otherwise would have been. In the next generation or two people will produce and consume fewer goods and services than they otherwise would have. Maybe this will take some pressure off the environment.
Posted by: j rossi on May 30, 2003 08:07 AMNewt writes:
>
>Look at the poll numbers. The people want this political agenda.
>How can you suppose that doing the will of the people is a high
>crime?
First, the notion of impeachment is pretty silly. That said, I actually *do* look at the poll numbers in their full context:
http://www.pollkatz.homestead.com/files/MyHTML3.gif
I've said it before, but I guess it's worth noting again that Bush's poll number are striking because he loses a remarkably consistent 1-2% per month between April 2001 and the present...except for the two obvious spikes caused by 9/11 and the Iraq war. What this tells me is that there is not especially strong support for Bush policies, but support for him during certain crises. As far as where his numbers will be a year and a half from now, I think it is very hard to say. If unemployment is still over 6%, the presidential race will likely be *very* competitive.
>Bush leads by a 15% landslide over any likely Democrat
>challenger. That's all the endorsement his tax cut and budget
>management will ever need. The people want this kind of
>budget and that's that.
A sitting president who *doesn't* lead any likely (but by almost certainly less well-known) challenger by a healthy margin in year 3 of the cycle by definition has some problems. At the same time, everybody knows that this poll numbers for handling the economy are nowhere near as good as his numbers for defense and security issues.
Posted by: Jonathan King on May 30, 2003 08:44 AMThe 44T number relies heavily on assumptions about per-capita GDP growth and growth in healthcare spending. In particular, the authors assume that health care costs will grow at 1% above GDP for the next 80 years.
When I put those numbers in a spreadsheet, it looked to me like they're claiming that in 2100, healthcare will be about 37% of total GDP. That seems crazy to me. By point of comparison, from 1990 to 2000, health care grew from 13% of GDP to 14%. When I instead use that growth rate, I got health care costs at 19% of GDP. A big difference.
Does anyone know how they selected their numbers for GDP and healthcare growth rates? Or were my numbers just all wet?
Posted by: Anurag on May 30, 2003 09:55 AMAnurag,
I got basically the same numbers you did.
One sentence in the report says, "Consistent with the Medicare's [sic] Trustees, in our baseline case, we assume real health-care outlays per capita grow at an annual rate that is 1 percentage point faster than the growth rate in GDP per capita until 2080."
[The following text is lifted from a post I made to Max Sawicky's weblog comments section:]
I did the math, and it seems to show that this assumption means that the ratio of health care spending to GDP grows expontially. I have to check my math, but I find that the ratio 2080 must be e^((2080 - 2003)*0.01) times what it is now. The latter figure is, I believe, about 15%. e^0.77 is roughly 2.16.
Thus the authors are assuming that by 2080, the ratio of health care to GDP is 32% (about 1/3, more than double of what it is now).
I wouldn't say that this is impossible, but making such an extrapolation of the rate of health care spending over the next 77 years is questionable, to say the least.
Anurag writes:
>The 44T number relies heavily on assumptions about per-capita
>GDP growth and growth in healthcare spending. In particular, the
>authors assume that health care costs will grow at 1% above GDP
>for the next 80 years.
That sounds plausible.
>When I put those numbers in a spreadsheet, it looked to me like
>they're claiming that in 2100, healthcare will be about 37% of
>total GDP. That seems crazy to me. By point of comparison, from
>1990 to 2000, health care grew from 13% of GDP to 14%. When I
>instead use that growth rate, I got health care costs at 19% of
>GDP. A big difference.
OK, so now I'm not sure which calculation you did, and whether the one I just did is right or wrong. :-) If in 1990, health care was .13 of GDP, and 10 years later it was .14 of GDP, health care did grow more rapidly.
OK, so let's call the growth rate of gdp g, the growth rate of gdp items ex-healthcare x, and the growth rate of healthcare h. Then:
h = g + d
where d is the difference in growth rate between gdp in general and the health component. If H is the proportion of the economy that is health care, then we also have:
g = (1-H)x + Hh
or
g = (1-H)x + H(g+d).
Now the rate of GDP growth ex-healthcare is just:
x = (g - H(g+d))/(1-H)
If we normalize GDP at the start to be 1, then after p years,
we have:
GDP = (1-H)x^p + H(g+d)^p
which becomes:
GDP = (1-H)((g - H(g+d))/(1-H))^p + H(g+d)^p
Healthcare's share of this, GDP_H, is then
GDP_H = H(g+d)^p / GDP
= H(g+d)^p / ((1-H)((g - H(g+d))/(1-H))^p + H(g+d)^p)
OK, so from the historical data you give, H_1990 = .13, and H_2000 = .14. Plugging in H_1990 for H and p=10, we can get
GDP_H = H_2000 (or very close) by setting d=.008 for a g that
ranges between 1.02 (e.g., 2% annual growth) to 1.045.
Cool; so now we can plug in for g and d and get H_2100. Here's
what I get for various parameter combinations of g and d, with H=.14 and p=100:
g=1.01, d=.008: H_2100 = .29
g=1.03, d=.008: H_2100 = .29
g=1.05, d=.008: H_2100 = .28
g=1.01, d=.010: H_2100 = .34
g=1.03, d=.010: H_2100 = .33
g=1.05, d=.010: H_2100 = .33
g=1.01, d=.012: H_2100 = .39
g=1.03, d=.012: H_2100 = .38
g=1.05, d=.012: H_2100 = .38
OK, so now I only get the report's healthcare share of GDP if d=.0115 or so, not d=.010. On the other hand, an estimate of d=.008 from the 1990s data gives numbers that are much higher than your figure of .19. (Seems to require d=~.003 or so.)
Interestingly, it looks to me like the swing in the numbers is crucially more dependent on d rather than g, for realistic growth rates. I'm assuming they model a larger d than the 1990s data would indicate on the (reasonable?) assumption that an aging population will demand more and more expensive care.
OK, so where did I mess up. :-)
Stephen J. Fromm writes:
>I did the math, and it seems to show that this assumption
>means that the ratio of health care spending to GDP
>grows expontially. I have to check my math, but I find that
>the ratio 2080 must be e^((2080 - 2003)*0.01) times
>what it is now. The latter figure is, I believe, about 15%.
>e^0.77 is roughly 2.16.
Sigh. There are days when I wish I was a bit lazier...
Yes, what you do is much easier to calculate and close enough for the back of the envelope. However...
After p years, the whole economy (H+(1-H)) is g^p times larger, and the healthcare segment is (g+d)^p times larger. So the ratio of the two growths is:
(g+d)^p/g^p
= (1+d/g)^p
~= e^(dp/g)
The problem with this version is that you can generate a healthcare share greater than 1 if you just naively multiply
this by a starting healthcare share. Not a problem in this case, I don't think, but give it another hundred years...
Now, my previous post is wrong because I end up calculating a growth rate for ex-health that is wrong because I treat it as a constant, while it actually changes (decreases) as the non-health share of the economy declines. But then this points out the silliness of this as a very long term model anyway, since you can't keep the spread between g and d+g in the long run once the entire economy has become helathcare...
Posted by: Jonathan King on May 30, 2003 01:43 PMFor anyone interested, I expand on my comment here on my own site.
One thing I did wrong was to not decline health care growth from 1% to 0% from 2080 onwards -- it seems arbitrary on their part, but whatever. It's their model.
But to elaborate on my calculation (which since it's just 100 rows in excel, I just did open-form rather than closed).
They were using a GDP per capita growth rate of 1.7% (I think). So, that take me from roughly a 10T economy now to 54T in 2100 (in todays dollars, scale as you want for population increase/decrease -- since this is per capita growth, it shouldn't matter to us, since the health care overhang will scale too and we're just interested in the ratio).
If I start health care in 2000 at 1.4T (14%), and grow it at 2.7% (1% above core GDP rate) till 2080 and then reduce the increment over core GDP by .05% for the next 20 years to get dowth to the same rate, I end up with health care at 18.3T. Or 34% of GDP.
If I instead use HC incremental growth of .33% over the 1.7%, in 10 years, we go from 14% to 15% (matching the rate of increase in last 10 years). Then I end up with HC at 10T in 2100, or 19% of 54T.
My point is, of course, not to argue for one number over another, just to show how dependent the calculations are on the number you choose.
Jonathan,
No, my calculation wasn't back of the envelope; it was exact. Comes out of a simple ODE.
Posted by: Stephen J Fromm on May 31, 2003 03:03 PMLet us assume, for the sake of the discussion, that Bush's tax cuts in 2001 (the $1.3 - or $1.7 -depending on which number you wish to use for 10 years) and the recently passed reductions of $350 for 10 years never passed. The federal government would (roughly) have received the $1.6 or $2.0 trillion in revenues (and that assumption is speculative since the economy has slowed). Okay, so Washington has $2 trillion in extra revenues.
Anyway, instead of projected $44 trillion deficits (99%, of course, caused by shortfalls in revenues of payroll taxes NOT income taxes) we would have projected $42 trillion deficits. And that's assuming that that extra $2 trillion would NOT have been spent by a Gore Administration. Who believes that?
So, would we feel better with $42 trillion instead of $44 trillion? Seventy five years from now?
Folks, we have demographic problems with social security and Medicaid and the obligations within those system. European nations have similar - even worse - obligations. I would trade our current and future financial status for ANY western nation out there. Hands down.
We can bash Bush - and so folks will be fooled that he's the cause of this. But this debt was cooked into the pie a long time ago.
We can begin now - with small steps - to mitigate this. Means testing, increase the age for eligibility. Increase income taxes - or stopping income tax cuts - will have NO, ZERO effect on this problem.
SMG
Posted by: SteveMGalbraith on May 31, 2003 03:29 PMUh Steve, your analysis is incorrect. The $2 Trillion is just the 10 year revenue drop of the original Bush tax cut. IF the cuts are permanent, then the revenue shortfall is even greater in the next 65 years. The revenue drop from PERMANENT tax cuts would not be $2 trillion but a number greater than the $40 trillion. Duh.
Posted by: bakho on May 31, 2003 10:40 PMJonathan,
Ah, I see where I think I made a mistake. Using the 0.01 the way I did made it end up being compounded instantaneously, so that the change over one year isn't 1.01, but rather e^0.01. But that's easily corrected. (I did it with the ODE because nowhere in the sentence I found did the authors say the rates were assumed *constant*, though I'm sure they did assume that elsewhere, which makes your method fine.)
Posted by: Stephen J Fromm on May 31, 2003 10:52 PM