June 22nd, 2011
Econintersect: The Congressional Budget Office has gone on record stating "fiscal policy cannot be put on a sustainable path just by eliminating waste and inefficiency; instead, changes will need to significantly affect popular programs, people’s tax payments, or both.
The basis of this statement is that over the last 40 years:
- Revenues have averaged about 18 percent of GDP, with substantial variation around that level but no trend.
- Older Americans have received:
– Cash payments that have risen with average wages (through Social Security),
– Health insurance with a significant defined-benefit subsidy (through Medicare), and
– Additional subsidies for health insurance and subsidized longterm care (through Medicaid) for many of those with very high medical costs or little income and assets.
- The costs of Social Security, Medicare, Medicaid, and the Children’s Health Insurance Program have risen substantially relative to GDP, from 4.3 percent in 1971 to 8.7 percent in 2007 (before the recession).
- Defense spending has fallen substantially relative to GDP, from 7.3 percent in 1971 to 3.9 percent in 2007.
- Outlays for all other federal programs have shown substantial variation relative to GDP and a slight downward trend.
In other words, the budget is growing because of social security, Medicare, Medicaid, and the Children's Health Insurance Program. The rest of the USA budget is declining or flat in comparison to GDP.
The CBO concludes:
The question is not whether to change current policies, but when and in what ways. There are trade-offs regarding the timing of implementing policy changes, but there are important benefits and few apparent costs to deciding about those changes soon.