The Fiscal Gap: more is not better

Good news. The Government Accountability Office (GAO) came out with their Fall 2009 update to the Federal Government's Long-Term Fiscal Outlook today.

Bad news. Social Security and Medicare are still projected to bury us under a pile of debt over the coming decades.

This should not be a surprise, especially to those who read my earlier post following up on the soda tax discussion. I want to zero in on one of the starkest measures of how far behind we are falling - the fiscal gap. I mentioned in that earlier post that we as a country are $56 trillion in debt when taking into account expected obligations over the next 75 years (the promise that the government will pay for things like Medicare, Social Security, and interest on the national debt). With the GAO update, that number is now $62 trillion (adjusted for inflation to 2009 dollars). This increase does not have much to do with current increases in discretionary spending, including ARRA (the stimulus act) or TARP. It primarily arises from revised calculations that account for the economic downturn over the last year.

That $62 trillion number is the fiscal gap. It represents the amount of money (in 2009 dollars) needed just to maintain our current level of debt over the next 75 years. So for you deficit hawks out there, we need to cut spending, raise taxes, or both, over the next 75 years to the tune of $62 trillion just to maintain our current debt level relative to the country's gross domestic product (GDP, a measure of the country's total output of goods and services in dollars - $14.3 trillion in 2008). Revenues, spending, and debt are often spoken of relative to GDP, and are usually expressed as a percentage (GAO projects annual budget deficits in excess of 7% of GDP).

Note that the 75-year outlook assumes revenues (from things like payroll and corporate taxes) and discretionary spending (for things like national defense, federal highways, and national parks) remain at their 40-year historical average.

I think it's important to spread this knowledge, particularly when an obscure report like this is published. I recommend you to stay informed on this topic by also checking out the Peter J. Peterson Foundation. The Foundation's president, David Walker, was the United States Comptroller General from 1998 to 2008 and has spent the last several years getting this message out.

I know it's hard to get too upset about this, as the numbers are so big and the projection covers so many years that it almost moves into the realm of the abstract. But every year we delay real action on this problem, it just continues to grow. Our children and grandchildren will certainly see the effects of this problem, so the sooner we start working on it, the better for everyone.