Tough talk from the CBO
Worthwhile reading from Douglas Elmendorf, the Director of the Congressional Budget Office.
Key sentences come at the end:
“The country faces a fundamental disconnect between the services the people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services. That fundamental disconnect will have to be addressed in some way if the budget is to be placed on a sustainable course.”
The accompanying slides of his speech highlight two converging trends. The first is the rising cost of health care, particularly for those over 65. No end in sight for this trend.
The second trend is demographic. At the moment (according to his slides) the population age 65 or older is about 20% of the population aged 20 – 64. In 20 years, this grows to nearly 40%. With a labor force participation rate of about 65%, this means there are now about three workers for every person over 65. In 20 years this will be less than two workers for every person over 65.
In my view, the US has four options:
- less spending (particularly on health care for seniors);
- more taxes (falling heavily on the young);
- increase the number of working age residents (which means much higher immigration); or
- further expansion of public debt (which at some point simply becomes unsustainable).
Unfortunately, if you are a member of Congress today, the first three options carry significant personal career risk.
