and led both the Bush and Obama administrations to support huge eco- nomic stimulus and rescue programs for banks, investment firms, corpo- rate America, the housing industry, and the general public. With the first wave of baby boom- ers becoming eligible for Medi- care in 2011, it was horrible timing all around — leaving the country
Conservatively, that number will quadruple by 2035. It might seem small, but 4 percent of the GDP translates to 16 percent of all fed- eral tax revenue. With one of every six tax dollars collected needed just to cover inter- est payments, a much smaller por- tion of the tax pie would be available to provide government services.
Social Security The impending retirement of baby boomers will increase Social Security spending from the current 5 percent of the GDP to 6 percent by 2030. That’s nowhere near the magnitude of Medicare/Medicaid cost growth, but it’s by no means insignificant. The recession actually might ease the long-term Social Security effects,
Federal Debt as a Percentage of the GDP, 1900-2035 Percentage of the GDP 200 150 World War II 100 50 World War I
The Great Depression
Extended baseline
0 1900 1915 1930 1945 1960 1975 1990 2005 2020 2035
*Alternative fiscal scenario envisions tax cuts extended and alternative minimum tax (AMT) indexed; the extended baseline assumes Bush tax cuts will expire in 2011 and AMT temporary protections will not be extended.
Actual Projected
Alternative fiscal scenario*
trapped in a perfect economic storm precisely when long-building bud- getary and demographic conse- quences are beginning to be felt. What are the consequences of this
vast increase in the national debt, and where is all that money going?
Interest payments The amount the country must pay in interest on the debt will rise pro- portionally — or likely more than proportionally, because the more the country needs to borrow, the higher interest rates it will have to pay. Currently, interest on the debt is about 1 percent of the GDP.
CHART: CONGRESSIONAL BUDGET OFFICE
Health care The largest increase in spending growth has occurred — and will con- tinue to occur — in health care. Today, spending on mandatory federal health care programs (mainly Medicare and Medicaid but also subsidies for the new national health care reform cov- erage and some children’s care) repre- sents about 5 percent of the GDP but is projected to double to 10 percent by 2035 and will continue to grow. One contributor was the relatively
recent addition of pharmacy cover- age for Medicare patients, which was further increased under the 2010 na- tional health care reform law.
as many out-of-work baby boom- ers are opting to begin participation in Social Security at earlier ages than they had expected. While that raises short-term costs, it saves some money over the long run because their monthly checks will be smaller than if they had delayed retirement until later years.
Other government spending Over the past 40 years, spending on government programs other than health care, Social Security, and interest on the debt has averaged about 18.5 percent of the GDP. That
O C TO B E R 2 0 1 0 MI L I T A R Y O F F I C E R 5 3
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