This podcast first began with a discussion of the national debt. Here are a few key points to keep in mind:

1. Our tax revenue as a percentage of GDP has mostly been steady since the 1950s. Although the specific source of that revenue (income, payroll, corporate, etc) has shifted over time, the actual tax burden of the entire economy has not.

2. Our spending, on the other hand, has definitely increased over time. There was a large spike during World War II, and a broad increase from the end of the war to the present.

   

   Spending

A look at the government’s spending reveals the following:

1. Most of our spending is on social security, medicare, medicaid, the Department of Defense, and interest payments. All other programs (energy, transportation, NASA, etc) are a relatively insignificant portion of the budget. “Health” in the graphs below is mostly medicaid, while income security includes federal employee pensions, SNAP, housing assistance, etc.

   

   

2. Three of these items - social security, medicare, and medicaid - are mandated by law and in the case of the first two, have their own revenue streams (payroll tax). It would require congressional action to reduce spending here. This is unlikely, since medicare and social security largely provide services to the elderly, who vote at a much higher rate and have a disproportionate influence on congressional behavior.

3. Although the US spends much more on defense than most countries, the annual spending as a percentage of GDP is much lower than historical trends for the country.

4. Medicaid is less politically volatile than medicare, as medicaid serves the poor, who vote at a low rate, compared to medicare’s service of the elderly, who vote at a high rate. However, medicaid also does provide long term care coverage for the elderly.

The real reasons we are having a debt crisis are because 1) the population is getting older and requires more services and 2) our healthcare system is very inefficient.

Solutions

We talk about improvements to healthcare spend in episodes 30, 31, and 32. To summarize, negotiating drug prices and implementing a universal healthcare system would reduce total healthcare spend (taxpayer plus individually funded). Drug price negotiations would reduce taxpayer spend, while universal healthcare would reduce total spend but with the potential of higher taxpayer spend (with most of the savings going to individual direct payments). Unfortunately, the political will to implement these changes seems low.

In terms of the aging population, there are a few ways to tackle this problem. Reducing benefits would close the deficit significantly. Some options could include increasing the retirement age or reducing monthly social security payments. However, these are unlikely to be implemented given the political cost.

Options to increase revenue include removing the social security payroll tax cap or increasing the number of workers. The social security tax is currently capped at $176,100, above which there is no tax. This would be moderately politically feasible to implement, but only if working and middle class voters could be mobilized on the issue.

In terms of increasing the workforce, there are two options. One is to increase birthrates. However, this would cause a fiscal drain for 18 to 22 years, while the new generation receives an education. Moreover, countries have largely failed so far to increase birthrates.

The other option is to increase immigration. This has the benefit of immediate net fiscally positive contributions to the system. However, recent political climate shows that increased immigration is not politically viable.

Reducing military spending would largely revolve around force reductions. The CBO has analyzed this with a few options. It would largely entail the reduction of forces across much of the world, reduction in military hardware, and an overall weakening of American military power, with reduced force projection capability.

A quick look at these solutions shows most of these options would be unpopular across much of society. Reducing social security and healthcare coverage, increasing taxes, bringing in immigrants, and weakening our military power are all courses of action which very few people would support. But when discussing the national debt, this is what really moves the needle.

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