Number: RS22232
Title: The Government's Long-Term Fiscal Shortfall: How Much Is Attributable to Social Security?
Authors: Marc Labonte, Government and Finance Division 
Abstract: One reason that Social Security reform is on the congressional agenda is the large projected long-term fiscal shortfall facing Social Security, estimated at an average of 0.9% of gross domestic product (GDP) between now and 2080. But relatively little attention has been given to the potential long-term shortfall faced by the rest of the government, which is estimated to be more than 6.5 times larger than Social Security's shortfall. The government's overall fiscal gap under an extension of current policy, estimated at an average of 7.2% of GDP between now and 2080, is the result of the large projected increase in future spending that is not matched by any projected increase in tax revenue. Most of the increase in spending occurs in Medicare and Medicaid; Social Security is the third largest contributor to the fiscal gap. If viewed from the revenue side, the 2001 and 2003 tax cuts increased the fiscal gap by an average of 2.2% of GDP between now and 2080. The fiscal gap measure may be useful to policymakers because it highlights the unsustainability of current policy in the long term and the potential cost of inaction, and it provides a measure that can be used to estimate the implications of current policy for the macroeconomy and generational equity.
Pages: 6
Date: July 18, 2007