The Government Accountability Office (GAO) published its fall update titled “The Federal Government’s Long-Term Fiscal Outlook” and it didn’t attempt to sugar coat the future economic collapse in the United States.
As Republicans and Democrats debate in Washington, the GAO issued the report and warned that if Congress does not make the necessary cuts to mandatory spending, such as Social Security and Medicare, then there will be a substantial gap between revenues and spending as more and more baby boomers retire.
By the year 2025, the average number of daily baby boomers hitting the age of 65 will be close to 12,000, while at the same time the debt held by the public would be 60 percent (baseline extended) or 100 percent (alternative).
The two simulations can be found in table two of the report. The baseline extended takes into account the Congressional Budget Office’s (CBO) August 2012 baseline, while the alternative includes expiring tax provisions being extended and the Alternative Minimum Tax (AMT) exemption amount indexed to inflation throughout 2022.
In the report, the GAO noted that discretionary spending is not the core of the federal government’s budget deficit and limits do not address the “imbalance between estimated revenue and spending.” The increasing deficit is largely due to the aging population and health care spending growing faster than the overall economy.
“Addressing the long-term fiscal challenge will likely require difficult choices affecting both revenue and spending,” wrote the GAO. “In addition, the need to act soon to develop a plan for addressing the long-term fiscal imbalance must be balanced with concerns about the near-term of policy decisions.”
The Fiscal (entitlement) Cliff
Aside from the total national debt of $16.3 trillion and $1 trillion-plus budget deficit as well as the total interest of nearly $4 trillion, the nation’s total unfunded liabilities and expenditures exceed $121 trillion ($1.06 million per taxpayer):
– Social Security Liability: $16.04 trillion
– Prescription Drug Liability: $21.23 trillion
– Medicare Liability: $84.4 trillion
David M. Walker, former Comptroller General and CEO of GAO, has been warning for years about the pending fiscal calamity, or “fiscal cancer,” that can or will occur if necessary action is not taken, including entitlement reform and cuts to the federal budget. He goes on tour now with his “Comeback America” initiative and also published a book with the same name.
There have been proposals by representatives to change the entitlement system in order to save it, such as Kentucky Republican Senator Rand Paul’s suggestion that consists of raising the retirement age eligibility for people under 55, allowing individuals to opt out and instituting private retirement accounts.
Despite measures out there to address entitlement reform, many agree that Washington doesn’t have the political will to actually do anything. Even if the entitlement system would create a long-term fiscal mess, politicians only “think in terms of short term,” at least according to Benjamin Powell, associate professor at Suffolk University and senior fellow with the Independent Institute, in an interview with the Daily Caller.
Furthermore, there have been many public officials that deny programs like Social Security are adding to the national debt.
Last month, Illinois Democratic Senator Richard Durbin told ABC’s “This Week” that Social Security should not be part of any fiscal cliff negotiations between President Barack Obama and the GOP leadership because it is solvent.
“Social Security does not add one penny to our debt — not a penny,” said the Illinois Senator. “It’s a separate funded operation, and we can do things that I believe we should now, smaller things, played out over the long term that gives it solvency.”
According to FactCheck.org, the federal government has had to borrow nearly $40 billion to cover Social Security. These numbers are continuing to increase and will do so until its funds, the principal and interest are used up.
The CBO projects Old-Aged and Survivors and Disability Insurance (OASDI) trust funds will be exhausted by 2038 – the Disability Insurance by 2016. However, the Social Security Administration (SSA) says that will not happen because changes will be made “to restore long-term solvency.”
In the end, according to Walker, the U.S. government will only be able to afford the interest on the national debt and some entitlement programs. There will not be any money left for national defense, education, national security or anything else.