Expert Testimony Shows Entitlements As Unsustainable

Posted on April 16, 2010. Filed under: General Info | Tags: , , , |

Veronique de Rugy is a senior research fellow at the Mercatus Center. She was previously a resident fellow at the American Enterprise Institute, a policy analyst at the Cato Institute, and a research fellow at the Atlas Economic Research Foundation. Her research interests include the federal budget, homeland security, taxation, tax competition, and financial privacy issues.

Oversight of Federal Financial Management

Testimony before the House Committee on Oversight and Government Reform, Subcommittee

on Government Management, Organization, and Procurement

Veronique de Rugy | Apr 14, 2010

America’s financial situation is unsustainable. In 2009 the federal government spent $3.5 trillion but collected only $2.1 trillion in revenue. The result was a $1.4 trillion deficit, up from $458 billion in 2008. That’s 10 percent of gross domestic product (GDP), a level unseen since World War II. The Congressional Budget Office (CBO) projects that we will be running large deficits for the foreseeable future. According to its data, the annual deficits could average $1 trillion during the next 10 years.

While these figures are dramatic, they pale in comparison to what the federal government owes to foreign and domestic investors. According to the CBO, in 2009 America’s debt held by the public reached $7.5 trillion, or 53 percent of GDP, the highest it has been in 50 years. In 2010 the debt will cross the 60 percent threshold, a level at which many economists believe a country is putting itself in financial peril.

Maybe more importantly, the financial accounting of our financial troubles can lead us to underestimate the gravity of the situation. For instance, while the Department of Treasury’s Financial Statement of the United States depicts the financial situation of the country much more accurately than the Office of Management and Budget’s Budget of the United States, it leaves out some important elements that could hinder lawmakers’ realization of the urgency to address our financial situation. For instance, it accounts accurately for the IOUs in the Social Security Trust Fund, however, fails to account for how the federal government will pay its debt to social security and what it means for our debt levels.

Her testimony, complete with graphs and charts, can be found at:

and includes:

“Medicare spending growth is the primary driver of the explosion in entitlement spending. The President’s FY 2011 Budget estimates $451 billion in Medicare spending in FY 2010, a 6% increase in Medicare outlays over 2009, as a percentage of GDP. In the long-term, CBO’s baseline projects that Medicare spending will grow by 2.6% annually Moreover, under the CBO’s alternative scenario, which includes likely policy changes, Social Security, Medicare and Medicaid and net interest spending combined are projected to exceed total federal revenue by 2028.

As entitlement spending increases, the indebtedness of the Medicare and Social Security trust funds Programs will increase as well. Over the next 75 years, the federal government has promised benefits for these two programs in excess of anticipated payroll tax revenues equal to $7.7 trillion and $38 trillion, respectively.

The Treasury Department estimates Social Security’s deficit at 1% of GDP over the next 75 years and Medicare’s deficit at 4.8%. With federal revenues estimated to be about 19% of GDP in the long run under current law, taxes would have to rise by about one-third to pay all the promises that have been made for just these two programs.

The Office of Management and Budget estimates that in the absence of massive cuts in Social Security, Medicare and other programs, or an equally massive tax increase, the national debt will rise to 77% of GDP in 2020, 100% of GDP in 2030 and more than twice GDP by 2050.”

Her Conclusion:


As I’ve shown, the fiscal path of this country is simply unsustainable. The less-than transparent ways in which the federal government goes about accounting for its assets and liabilities does not allow policymakers and agency decision-makers to make informed decisions about the nation’s true fiscal position. I thank you again for the opportunity to testify on this most important topic, and look forward to answering your questions.”

Hat tip to David Paquette for the information contained above.

Please also see the column on pensions we did earlier this week : Boomers Beware: Is Your Pension The Next To Go?


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