Long-Run US Fiscal Challenge

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Long Run US Fiscal Challenge

Introduction

The problem of US fiscal deficit and spending is real. It has been projected by the Congressional Budget Office (CBO) that the horizons for US fiscal condition are very bleak in the years going forward. In the next 40 to 50 years, the US fiscal deficit would have reached untenable proportions. This will happen as the total US debt will rise to become equal to about 100% of GDP. This will include both internal and external debt. Furthermore, things will also be very gruesome for public spending. It has been estimated that the level of government spending will reach dangerous proportions. This will happen principally due to increases in the entitlement payments that it will have to make. These entitlement payments include those for Social Security, Medicare, and Medicaid, which are direct payments made by the government, currently reaching about 40% of total government spending.

On the other hand, the government's fiscal stance is further eroded by the Congressional policies. It is clear that the Republicans in the house want to restore the Bush-era tax breaks which were introduced earlier. The tax cuts for the lower groups below $250,000 will be continued indefinitely into the future (Leonhardt, 2011). These will then be further deteriorated by ever-rising interest payments by the government on its bloating debt. Hence, it is expected to result in a fiscal crisis for the US economy and the government.

US fiscal challenge

The steady rise in the amount of entitlement payments in the United States is a result of the current and future demographic trends. It is clear that the popular baby boomers will retire and will live longer. Further, the US fertility rates have already dipped. Then there is no wonder that it will call for ever-higher requirements for making these ...