The Deficit Argument, IV
Hal Varian gives a clear account of the concern with long-term deficits.
A recent study by the economists Alan J. Auerbach, William G. Gale, Peter R. Orszag and Samara R. Potter, “Budget Blues: The Fiscal Outlook and Options for Reform,” lays out the facts…
According to the economists’ projections, the spending on Social Security, Medicare and Medicaid will grow from 9 percent of G.D.P. in 2001 to 21 percent by 2075. “These three programs,” the economists say, “would ultimately absorb a larger share of G.D.P. than does all of the federal government today.”
Varian points out that under tax law as presently written, the Alternative Minimum Tax looms very large.
those who expect to gain from future tax cuts simply do not understand that much of the tax saving they anticipate will be taken away by the alternative tax.
Finally, he writes
There is no magic bullet for Social Security. Fixing it will involve some combination of increasing the retirement age, cutting the growth rate of benefits and increasing contributions. Medicare and Medicaid will be an even tougher problem.
For Discussion. Varian suggests that the tax cuts of 2001 should be replaced by repeal or reform of the Alternative Minimum Tax. What are the pros and cons of this idea?