includes funding for DoD and all other government agencies. Perhaps the best way to envision the potential effect of growing defi- cits in this area is to view it as being squeezed by growth in other areas. If combined spending on health
care, Social Security, and interest on the debt rises from the current 11 percent of the GDP to 20 percent as conservatively predicted, the nearly unavoidable conclusion is all other areas of federal spending, including defense and VA programs, will find themselves squeezed significantly.
Taxes The flip side to spending, of course, is revenue. A significant contribut- ing factor to the current deficit has been prolonged periods of recession and high unemployment, which necessarily depress tax revenue and increase spending on safety- net programs.
As the nation confronts dramati-
cally growing deficits, the challenge for politicians and the public is to make difficult choices between spending cuts and revenue increas- es, after many years of being reluc- tant to pursue either. Unfortunately, the choice can’t be
deferred much longer, given deficit projections upon which virtually all politicians and economists of every political stripe agree. The degree to which revenue
increases (higher taxes) figure in the process is directly proportional to the degree to which politicians and the public see those as less objectionable than the proposed spending cuts. Whatever we might individually
think about the desirability of further tax cuts, the fact is tax revenues as a percentage of the GDP (including pay- roll taxes and individual and corporate income taxes) already are lower than they’ve been in more than 40 years.
A taxpayer’s perspective Perhaps an easier way for taxpayers to grasp the magnitude of the defi- cit is to put it in terms of a house- hold budget. Americans are familiar with debt. Most have a home loan, one or more auto loans, and maybe a balance on a credit card bill. For most, their debt might be in the range of two to four times their annual income. Viewed in those terms, the fed-
eral debt at the end of 2010 (ap- proaching $14 trillion) is nearly seven times the projected 2010 federal revenue ($2.2 trillion). And the federal deficit will be about $1.5 trillion for 2010 alone, so we’re cur- rently spending about 68 percent more than we’re earning — a hair- raising trend for any normal citizen.
The challenge Although the recent economic crisis has magnified the urgency of the
Primary Federal Spending by Category through 2080 35 Actual 30 25 20 15 10 5
Other noninterest spending
Medicare, Medicaid, CHIP, and exchange subsidies
Social Security
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 Projected
5 4 MI L I T A R Y O F F I C E R O C TO B E R 2 0 1 0
CHART: CONGRESSIONAL BUDGET OFFICE
Percentage of the GDP
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