And an exactly opposite view point to post 45107..$44 TRILLION BUDGET SHORTFALL THREATENS U.S. FUTURE
The U.S. currently faces a $44 trillion budget shortfall, which must be addressed soon. Five years from now, millions of baby boomers will begin to retire. This will put a large strain on the budget from increased payouts of Social Security and Medicare benefits.
TODD'S TAKE: The budget problems will come from a $7 trillion shortfall in Social Security and a $37 trillion hole in Medicare. These numbers are based on current government revenue and spending. Economist and Boston University professor Larry Kotlikoff told Fortune Magazine that the U.S. is in big trouble if it doesn't sober up and face the pending budget problem. He has written 11 books, 80 journals and 37 op-ed pieces about the financial mess we're in. He has testified on Capitol Hill before Congress. But no one is listening.
The numbers come from a government report produced in 2002, that never saw the light of day, produced by two students of Kotlikoff. It was commissioned by Paul O'Neill, then Secretary of the Treasury. Their findings, shocked even them and were never published -- the Bush administration made sure of that.
To produce the report, they used the basic principles of Kotlikoff's generational accounting. They added up everything the government expects to spend -- Social Security benefits, debt-service payments, salaries, and so forth, far into the future and put it in today's dollars. Then they added up all the income the government expects to earn in the future -- taxes, income from government assets, all in today's dollars. They made certain key assumptions about the rate of growth in government spending, taxes, medical costs, and hundreds of other things. They came up with a $44 trillion gap between income and payments.
One of their assumptions was to use a conservative estimate for the increase in costs. They used the government's own numbers. In fact, they used a more optimistic number than the government itself. For medical costs, they used a number 1% greater than GDP, instead of the more common 3%. And after all of this they came up with a $44 trillion hole.
How big is $44 trillion? 1.5 times the size of the entire world's GDP. Or, the entire value of all real estate, stocks and bonds that we own in this country. And as Fortune says, "This amounts to a massive weight on the economy."
The solution is complicated, but not insurmountable if the government acts now. The formula to help prepare for the shortfall is to calculate future spending plus revenues collected. The math then inputs future growth variables for expenses such as Medicare and Social Security. The formula to help prepare for the shortfall is to figure out what needs to be spent in the future, and then add up all that the government expects to earn -- in today's dollars. This is similar to balancing your checkbook for the few years. You know how much you expect to earn and how much you will have to pay out in expenses of running your household. This is tricky, as growth numbers vary widely among experts. But it's something that must be done.
It turns out that to rid ourselves of this problem, Federal taxes would have to increase 69%, and payroll taxes would have to double. Solving this problem will hurt badly.
If they had used a number of 1.5% greater than GDP, rather than 1%, the $44 trillion hole goes to $65 trillion. And the $44 trillion is growing at the rate of $1.6 trillion a year (that's $1,600 billion. To put that in perspective, the budget shortfall this year will be about $600 billion.) Unless something is done to stop it.
THE BOTTOM LINE: I hope someone out there will get excited about the situation, like Kotlikoff, and do something. We are generally better off than our parents, but we're about to begin the process of leaving our kids with a burden that will make life very tough for their kids, and for generations to come.. |
