The NY Times has an interesting chart in its blog post entitled About Those Bush Tax Cuts for the Rich. As one who often talks about total Federal debt and not debt held by the public, I could go nuts over this graph’s use of the latter but by 2050, some projections have the Social Security Trust Fund reserves going to zero so maybe the implications for the debt to GDP ratio in 2050 are worth noting:
All else being equal, if the tax cuts are made permanent – without making up for the lost revenue by raising other taxes or cutting spending – debt-to-GDP will rise inexorably starting after 2010, reaching 100 percent in 2035 and more than 200 percent in 2050. Courting debt loads of that magnitude implies severe economic distress. In contrast, if the tax cuts are allowed to expire, debt-to-GDP will dip a bit in the decades to come and then rise rapidly, to 100 percent by 2050, pushed up mainly by rising health care costs. That’s still a big problem, but not nearly as big as it will be if the tax cuts are also extended. And since most of the rise will take place after 2035, policymakers will have time to try to address the problem before it explodes.
This is a very succinct statement of our fiscal choices. It is one that the fiscal hawks in the Democratic Party should repeat over and over especially when some GOP hack that wants to replace George W. Bush says we should make those 2001 and 2003 tax cuts permanent. I do have a problem with what follows:
From the chart, it may seem at first glance that the debt explosion is a problem for the distant future. Look again. Decision time is no later than 2010, when the lines diverge. It will be up to the next president and the Congress to put the nation on a healthy budget path – or not.
While I’d rather address the long-run fiscal policy problems sooner rather than later, this unified deficit accounting trickery is what is often abused by certain folks (including the Washington Post according to Dean Baker) to make us think we have an imminent Social Security crisis. I’d rather have their chart plot out the project time path of the total Federal debt to GDP ratio, which already is around 65 percent – not that 37 percent figure reported by the NY Times.