More Cliffs Than Fiscal
Charles Hugh Smith-More Cliffs Than Fiscal
The fiscal cliff is not the only cliff we’re racing toward; there are others.
The fiscal cliff dominates the mainstream news, but it is more like a bump on the pathway to the real cliff. In essence, the path has turned down and we’re picking up momentum, gaining speed as we head for the cliff.
The real cliff is the gap between what has been promised and what can plausibly be collected in tax revenues: $86 trillion by one recent estimate, over $120 trillion by other guestimates. The difference is caused by the relative rosiness of the projections to control Medicare and Medicaid spending. Lower estimates assume we can stop the growth of these programs in the long-term, something that has not yet happened for the reason that the system lacks any controls to do so.
This gap widens by $7 trillion a year. That is, the promises to present and future retirees and beneficiaries goes up if we count the promises made not just for 2013 but for the future.
This $7 trillion is twice the entire Federal budget and roughly 50% of the nation’s GDP. Understood in this way, we can see that raising taxes by $200 billion or cutting expenditures by $200 billion is not going to keep us from hurtling off the real fiscal cliff in a few years.