The happenings "inside" the Wisconsin State Treasury and across the street at the State Capitol

The Economy & You #50 – The Current Condition of our Federal Finances

English: Medicare and Medicaid as % GDP Explan...

English: Medicare and Medicaid as % GDP Explanation: Eventually, Medicare and Medicaid spending absorbs all federal tax revenue, which has averaged around 19% of GDP for the past 30 years. Category:Health economics (Photo credit: Wikipedia)

The issues of Medicare, Social Security, and the federal debt dominate our political landscape. In fact, these issues have been, and continue to be, major subjects of debate regarding the future of our country, especially during presidential campaigns. All of the rhetoric can cause many people to wonder what the truth is regarding these important financial issues.

Wisconsin Taxpayers Alliance (WTA) published an article outlining these issues and what the current financial condition is surrounding each of them.  To provide objective information, WTA relied upon the Congressional Budget Office (CBO) and the Annual Trustee’s Report on Social Security and Medicare for its data and information. Here is what they had to say.

The long-term budget outlook examined federal spending and reported that expenditures (excluding interest payments) equaled 15.9% of the gross domestic product (GDP), or national economy in 2000.  This percentage rose to 23.9% of the national economy in 2009 and is estimated at 22.0% for 2012. If interest payments on the current debt are included, the percentage rises to 23.4% of the U.S. economy.

When the federal government spends more than it takes in in revenues, a deficit occurs. During 2000-2008, the U.S. experienced surpluses or small deficits. This changed in 2009 as annual deficits rose to 8.8% and are estimated at 6.3% this year. These deficits continue to add debt and additional interest costs to such a degree that federal debt that is held by the public totaled 32% of the national economy in 2001 and rose to 40% in 2008.  The Congressional Budget Office (CBO) projects the debt held by the public could reach 73% this year and 199% by 2037. Debt like this has consequences as CBO estimates that real GDP will decline by 13.5% in 2037 as a result of continuous deficits. This will result in reduction in program funding and the possibility of financial crisis involving the government’s inability to borrow at reasonable rates.

Medicare & Social Security Deficits Chart

Medicare & Social Security Deficits Chart (Photo credit: Wikipedia)

Social Security costs have exceeded tax revenues since 2010 and will exceed taxes and interest in by 2021. The deficit of tax revenues was $148 billion in 2011 and is estimated to be $165 billion in 2012.  These deficits are seen as a result of the reduction in the payroll tax that was passed in 2011.  Overall, if nothing is done, the Trustee Report estimates that all assets designated for Social Security will run out in 2033.

Medicare is no better off.  The Trustees reported that in 2011 expenditures exceeded revenues by $19.1 billion.  Medicare Part A, which is the main program, has had expenditures exceed revenues since 2008. Under current law, expenditures will continue to be greater than revenues which will lead to all funds being exhausted in 2024. These are dire warnings that the Trustees have given to Congress and the public in its current report and in five previous reports.  Medicare and Social Security cannot be sustained in the long-term under current conditions.  Changes must be made to address a financial crisis that will occur in 20 years if nothing is done.

To view the documents, “The 2012 Long-Term Budget Outlook” from the CBO can be accessed at, and the “Summary of the 2012 Annual Trustees’ Report can be accessed at

Regardless of your political persuasion, these are issues that must be addressed as soon as possible.  The changes will not be easy as they will require people to pay more, receive less, or some combination of the two as the current programs cannot be sustained in the long-term. The true test of political will is whether elected officials can truly come together to address these financial issues that, if little or nothing is done, will fundamentally change our nation and the citizens it serves.


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