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The $45 Trillion Problem
Even if you think government budget numbers are generally not very interesting (and they do tend to blur together into an eye-glazing morass), here's a number to quicken the pulse: $45.5 trillion. That's the size of the long-term gap between the federal government's projected outlays (future spending plus current debt) and its projected revenues. Most government budget projections look only a brief distance into the future—a year, perhaps, or ten at the most. But Jagadeesh Gokhale and Kent Smetters, economists working at the Federal Reserve Bank of Cleveland and the University of Pennsylvania, respectively, have looked further into the future and determined that, in effect, if the U.S. government were a company its owner would have to pay a rational investor $45.5 trillion to take it off his hands. To put this figure in perspective: the entire U.S. economy generated only about $10.4 trillion last year, and total household wealth is currently only about $39 trillion. ...

...The long-term imbalance between the amount of taxes that Americans are accustomed to paying and the level of government services that Americans are accustomed to receiving will not, however, be changed by any alterations in short-term projections. Under any reasonable set of assumptions about economic growth, the natural growth rate of health-care costs, and other important factors, the gap between what we expect to pay and what we expect to receive is enormous. The magnitude of this looming gap has been masked for the past several decades by a demographic blip—the Baby Boom, which for nearly forty years has provided a large base of workers who contribute payroll and income taxes while consuming relatively few government services. In 2012, however, when the first Boomers hit retirement age, the situation will begin to reverse: a large proportion of the population will begin drawing more heavily on government services, while the relative number of taxpaying workers will start to shrink. Today there are nineteen elderly for every 100 working-age Americans; by 2050 there will be thirty-five for every 100. This means trouble: in 2015 Medicare taxes will fall short of Medicare expenditures for the first time; in 2018 Social Security payments will outstrip payroll-tax revenues. In short, if we don't make policy changes soon, the government's financial situation will begin imploding within the next ten years....