Chart of the Year: Entitlements and Interest Drive the Fiscal Crisis
The end of 2012 was marked by lawmakers engaging in a distracting fiscal cliff debate over tax rates when the solution to the real fiscal crisis lies in an entirely different area of the budget.
Federal spending on entitlements and interest on the debt drives the federal budget crisis. Together the three major entitlements of Social Security, Medicare, and Medicaid (including Obamacare), as well as net interest, make up more than half of all spending in the federal budget today. Their share of the budget will grow to over two-thirds of all spending in 10 years.
By 2025, the major entitlement programs and net interest together will eat up all tax revenues collected in that year. This implies that all other government spending, including for national defense, would have to be financed by borrowing.
This projection by the Congressional Budget Office assumes that historically low interest rates continue at least until 2015 and that inflation will be modest, inching up toward 2 percent of gross domestic product (GDP) by 2017. Nevertheless, spending on interest on the debt would double before the end of the decade.