Â Â Â Â According to a recent summary from the Congressional Budget Office, because our population is becoming older and sicker spending on Social Security, Medicare, and Medicaid is set to explode and the resulting mountain of debt will overwhelm us.Â Here are the depressing statistics.
Â Â Â Â The CBO has posted a slideshow of charts entitled "Aging and Health: The Challenges of Entitlement Growth."Â I would rate this report "not suitable for children" – not because of sex, violence, or bad language, but because of the despair it may engender in them for our country's future.Â Â
Â Â Â Â The essential problem is illustrated in Slide 8, entitled "The Population Age 65 or Older as a Percentage of the Population Ages 20 to 64."Â This slide shows that during the 25-year period from 2012 and 2037 the ratio of Americans who are over age 65 will double in comparison to the number of persons who are aged 20-64 – from about 18% to about 36%.Â That means that instead there being about 5 persons of working age for every person of retirement age, the ratio of workers to retireesÂ will be less than 2:1.Â
Â Â Â Â On average, our population will be much older and sicker.Â Fewer people will be working to support more people who are retired.Â Spending on Social Security, Medicare, and Medicaid will skyrocket while tax revenues remain comparatively stable.Â The result will be an accumulation of debt – a trend that is clearly not sustainable.
Â Â Â Â Slide 3, "Revenues and Outlays Under PolicyÂ Alternative to Extend Tax Cuts and Index Alternative Minimum Tax,"Â reveals that federal deficits have historically averaged about 3% of Gross Domestic Product, but that during 2009 the deficit ballooned to over 10% of GDP.Â It also shows that if we repeal the Bush-era tax cuts and refuse to index the Alternative Minimum Tax threshold, then within a few years we will return to a period where federal deficits will average 4% of GDP.Â However, the debt will continue to grow, due in part to yearly budget deficits, but ultimately because of interest accumulating on the debt itself – the magic of compounding.
Â Â Â Â The really scary chart is on Slide 5, "Federal Debt Under CBO's Long-Term Budget Scenarios."Â It shows that for several decades the federal debt has averaged between 30% and 50% of GDP, but that the debt will explode and within a few decades the debt will reach 200% of GDP.Â Even if we repeal the Bush-era tax cuts it will only delayÂ this process – it would still occur, commencing about the year 2025.Â By that time there simply won't be enough working people to pay the bills.
Â Â Â The CBO proposes the following solutions, none of which is an attractive choice:Â
1.Â Increase the retirement age;
2.Â Decrease social security benefits, particularly among high-income recipients;
3.Â Decrease payment to health care providers per health care service;
4.Â Decrease the number of health care services provided;
5.Â Increase tax rates within the current system; or
6.Â Institute a new tax such as a value-added tax.
Â Â Â Â Sorry to offer you such depressing reading today.Â No wonder economics is referred to as the "dismal science."