Fiscal Policy Research Conclusion
The US is accumulating national indebtedness at a rate that will become unsupportable if not curtailed. These obligations impose an unfair burden on future generations and will limit their capacity to deal with the challenges of their time. By controlling the growing cost of healthcare entitlements, we can establish fiscal balance without raising taxes.
SEE ALSO:
Fiscal Policy Research Conclusion
Summary basis of our Conclusion
Important Caveat: Given the recency of the $2 trillion CARES Act, the data used in this research have not yet been updated.
In 2001, the federal government began borrowing at a level that was unprecedented when measured by total debt, debt-to-GDP ratios, and interest expense. According to the Congressional Budget Office (CBO), “by 2020 the federal government will spend more on interest than it spends on Medicaid. By 2023, it will spend more on interest than it spends on national defense. By 2025, it will spend more on interest than funding for national parks, scientific research, education, and other non-defense programs.” The projected growth of Medicare and Medicaid is the largest driver of fiscal imbalance. As discussed in our Healthcare Research, the US can reduce the total cost of healthcare by adopting the best practices of other developed countries. The result will be a reduction in the cost of healthcare entitlements, and a restoration of sustainable budget balance without increasing taxes. Finally, as we discuss in Defense Policy Research, reductions can also be safely made in defense spending without jeopardizing our safety.
Countries that set an example
Germany runs a consistent budget surplus, and maintains a debt-to-GDP level of 60% versus the US level of 107%. It does so while providing universal health care, free college education, and first-class infrastructure. One fundamental reason for this achievement is that they maintain a modest level of military spending at $43 billion (less than 7% of the US level).
Australia currently has debt equal to only 41% of its GDP. It achieves this while providing universal healthcare and maintaining a solvent public pension plan for those who can’t afford their own retirement. As with Germany, one reason for the achievement is that they maintain a modest level of defense spending at 2% of GDP (versus the US spending of 3.1%).