facts and nonpartisan perspectives on the issues

IN THIS ISSUE

Our Fiscal Future

The economic stimulus plan being debated in Congress would add hundreds of billions in spending on top of an estimated $1.2 trillion federal deficit. Economists argue the benefits of this short-term jolt, but what we need for the long-term is undeniable: fiscal discipline.

The underlying problem is the escalating cost of Social Security, Medicare, and Medicaid, which, if unchecked, will increase the deficit and crowd out other programs in the federal budget. But, argues Urban Institute Fellow Rudolph Penner, the financial crisis has created an opportunity for policymakers to make the painful choices necessary to get the deficit under control and reform our entitlement programs

KEY FACTS

• The Congressional Budget Office estimates the federal budget deficit will reach $1.2 trillion—but that figure does not include the cost of the economic stimulus package, additional war spending, alternative minimum tax relief, and the extension of numerous temporary tax provisions that are routinely extended. Factoring in those costs would push the deficit far above $1.5 trillion in fiscal year 2009.
• Medicare, Medicaid, and Social Security represented 44.7 percent of federal spending in 2007 and could grow to 66.4 percent by 2030, according to the Congressional Budget Office.
• As baby boomers begin to retire and health care costs continue to rise, spending for these entitlement programs will grow much faster than revenues, pushing the deficit to an unmanageable size.
• The automatic growth of these mandatory programs ties lawmakers' hands, leaving less money in the budget for other domestic priorities.
• The gross federal debt, including holdings in trust funds, is likely to exceed $12 trillion by the end of 2010.
• More than $5 trillion (or about 40 percent of the Gross Domestic Product) is held by the public through the federal reserve system, individuals, businesses, states, and foreign governments. This figure will likely increase by more than 50 percent by the end of 2010.
• In 2007, foreign investors held about 44 percent of the federal debt in the hands of the public.
• According to some CBO projections, the debt to GDP ratio could exceed 100 percent by 2030.
  

Additional analysis is available in UI reports:

• Sunday Forum: The Debt Bomb—Rudolph G. Penner
• Barack's Budget Blues—Rudolph G. Penner
• A Budget We Can Believe In: Memo to President Barack Obama—coauthors include Rudolph G. Penner and Robert D. Reischauer
  
• Stabilizing Future Fiscal Policy: It's Time to Pull the Trigger—Rudolph G. Penner and C. Eugene Steuerle
• Taking Back Our Fiscal Future—coauthors include Rudolph G. Penner, Robert D. Reischauer, and C. Eugene Steuerle