Econstudentlog

$5000 / American

That’s how much Obama & co. will be borrowing this year. Then again, of course a per capita number like that is a deceitful way of measuring that debt accumulation, because how many of the Americans alive today are going to have to service that debt? How many over the age of, say, 65? From the article:

“The still-fragile economy and fresh tax cuts approved by Congress last month will drive the federal deficit to nearly $1.5 trillion this year, the biggest budget gap in U.S. history, congressional budget analysts said Wednesday.” […]
At $1.5 trillion, the deficit would equal 9.8 percent of the economy, the CBO said, making it one of the largest by that measure since the end of World War II.

Here’s a (long) CBO report on the subject. An excerpt:

“if most of the provisions in the 2010 tax act that were originally enacted in 2001, 2003, and 2009 or that modified estate and gift taxation were extended (rather than allowed to expire on December 31, 2012), and the alternative minimum tax
was indexed for inflation, annual revenues would average about 18 percent of GDP through 2021 (which is equal to their 40-year average), rather than the 19.9 percent shown in CBO’s baseline projections. If Medicare’s payment rates for physicians’ services were held constant as well, then deficits from 2012 through 2021 would average about 6 percent of GDP, compared with 3.6 percent in the baseline. By 2021, the budget deficit would be about double the baseline projection, and with cumulative deficits totaling nearly $12 trillion over the 2012–2021 period, debt held by the public would reach 97 percent of GDP, the highest level since 1946.”

More than 6% of GDP / year for the next decade. This is for the ‘realistic’ setting with assumptions less likely to be untrue than the baseline model. Note that the ‘debt held by the public’ in that sentence is federal debt. That’s debt equal to ~100% of GDP owed by the federal government in 2021, plus debt held by the states, plus private debt. That’s a lot of debt.

I wonder what would happen if Obama and his collegues were to increase taxation by $5000/citizen this year instead of just borrowing the money. I think people would probably react quite differently in that case. Ricardian equivalence?

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January 27, 2011 - Posted by | Economics, USA

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