Monday, July 13, 2009

What Will the Future Bring?

Robert Samuelson has a fine article on Real Clear Politics outlining some projected economic effects of existing policies:
The easiest way to measure the size of government is to compare the federal budget to the overall economy, or gross domestic product (GDP). The CBO's estimates are daunting.

For the past half-century, federal spending has averaged about 20 percent of GDP, federal taxes about 18 percent of GDP, and the budget deficit 2 percent of GDP. The CBO's projection for 2020 -- which assumes the economy has returned to "full employment" -- puts spending at 26 percent of GDP, taxes at a bit less than 19 percent of GDP, and a deficit above 7 percent of GDP. Future spending and deficit figures continue to grow.

What this means is that balancing the budget in 2020 would require a tax increase of almost 50 percent from the last half-century's average.
Scary stuff. The future is always open to change before it occurs, of course, but not unless course corrections are made. The current navigators are surely steering toward the shoals, though, while proclaiming that everything is working as intended. Well, in a way not intended by the author of that assertion, that might well be true.


VH said...

A 50% tax increase would be catastrophic. Frightening.

Jeff Perren said...

I agree, but such moves are generally unpopular. It strikes me as much more likely that - and this is already happening - the Fed will simply inflate everything to the point that a 50% tax hike will be a hidden reality.

Given the trillions in unfunded liabilities now on the books I can't see how else the Feds will deal with it.

The consequences of that are just as atrocious, though, no?

VH said...

Yup, the easy way for politico's to get around the word "tax" is too inflate the currency until it hurts. Either way, Americans are going to get hosed.