Columbia University Business School dean Glenn Hubbard writes in the Wall Street Journal today:
The spending shortfalls in Social Security and Medicare are large. According to the Congressional Budget Office, Social Security and Medicare spending left unchecked would, after a generation, consume about 10 percentage points more of GDP than it does today.
Simple arithmetic suggests that with this much more of GDP eaten up by the two programs, all federal taxes on average would have to be raised by more than 50% to make up the shortfall. Research by economists Eric Engen of the Federal Reserve Board and Jonathan Skinner of Dartmouth suggests that such a tax increase would reduce long-term GDP growth by about a full percentage point. This is no small matter: Think of it as reversing all of the gains in our long-term growth rate from the productivity boom of the past 15 years.
The header for Hubbard’s op-ed is “We Can’t Tax Our Way Out of the Entitlement Crisis.” It’s an argument we’ve been making for a long time. This chart projects Federal Spending as a Percentage of GDP through 2082:
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