The Big Picture

Looks like the Federal deficit for the fiscal year ended September 30, 2012, is coming in at just over $1 trillion.  That's actually a small improvement over the prior years of the Obama administration.  At the bottom of this post is a deficit chart from the Wall Street Journal in October.

But does the improvement represent something headed back toward stability?  Don't bank on it.  On the positive side, the cost of the Iraq war is way down, and the cost of the Afghanistan war is starting to come down, which hopefully will continue.   Without tax increases, revenue has recovered from a recession low of about $2.2 trillion, and is back up to around $2.7 trillion at an annual rate.

But overall spending continues at over $3.7 trillion per year.  What is filling in as the war costs decrease?  Obviously, the entitlements.  The CBO baseline projections for Medicare spending show $569.4 billion in fiscal 2012 (just ended) rising to $830.6 billion by 2019 and $1,047 billion by 2022.  Hey, that's less than a 7% compound annual growth rate -- pretty good!  Don't believe it.  For one thing, they've always been overly optimistic since day one of the program.  For another, they have assumed that all the Medicare cuts under Obamacare take effect without any problem.  Good luck with that.  How about if you assume that the Obamacare cuts will not happen or will be evaded?  Then according to the Kaiser Family Foundation the number rises to $935 billion by 2019.  That puts the CAGR back around the 8% we all know and love.

And that's just the start.  The CBO Medicaid spending baseline shows Federal spending on the program going from $275 billion in fiscal 2011 to $622 billion in fiscal 2022 - a 7+% CAGR that is also probably way optimistic absent fundamental program reform.

And then there are other exploding programs of the hand-out state, including social security disability and food stamps.  And don't forget the cost of Obamacare itself, already predicted by this site to be a Ponzi scheme in the making.

The proposals for tax increases limited to high income people cannot remotely keep up with the increases in the entitlements alone.  Advocates for ending Bush-era tax rates on income over $250,000 put forth optimistic projections that that change alone could generate almost$1 trillion in revenue over ten years. I don't believe it, but suppose it is true.  That's $100 billion per year on average.  The increase in annual Medicare and Medicaid spending during the same time period is projected at $700 billion -- and that is also optimistic.  Where is the other $600 billion per year coming from?

I'd kind of like to see some kind of a plan from the president.  I don't think we will ever see one.  I predict that in the next four years, we will see no proposal from the administration that would reform the big entitlement programs to get their growth rates down under the growth rate of the economy.  It will be, continue the Ponzi scheme and apres moi le deluge.