In a bipartisan program on Capitol Hill last week, two fiscal experts pointed to several factors that are driving long-term federal borrowing and called for a renewed focus on deficit reduction.
Alan Viard of the American Enterprise Institute and Joe Minarik of the Committee for Economic Development examined a variety of dire potential consequences at the program, hosted by The Concord Coalition. Those consequences ranged from increases in interest costs to large-scale tax hikes on the middle class.
“We’re the best-looking horse in the glue factory right now,” Minarik said while discussing why the U.S. government can still borrow easily in spite of its rising debt-to-GDP ratio.
Citing rising projected deficits due to health care spending and retiring baby boomers, Minarik said a combination of federal savings and revenue will be necessary.
Viard noted that under one scenario from the Congressional Budget Office, health and Social Security spending — now at 10.1 percent of GDP — would grow to 14.2 percent in 2040. In that situation, he said, financing entitlements at current levels would require “intolerably” high tax rates.
Viard suggested that some form of consumption tax along with the federal income tax would be the most likely eventual outcome of failure to restrain entitlements.
The program was the latest in Concord’s series of “Lookout Sessions” to provide information for lawmakers and their staffs.