How Bad is the Debt Crisis?

Worse than you probably think. Using an econometric model, Ray Fair estimates what it would take to stabilize the debt-to-GDP ratio indefinitely into the future by 2020. Answer:

  • We would need increased taxes of $650 billion a year in 2011 dollars, or $6.5 trillion over the next decade.
  • The economic effects of higher taxes would be slower growth, resulting in about $2 trillion in lost output, or almost $1 of reduced output for each $3 of higher taxes.
  • This tax increase is equivalent to 45% of all personal income taxes, or 51% of all social security taxes, or a 44% sales tax on all purchases of goods and services.
  • Alternatively, the same goal could be achieved by eliminating almost one of every four dollars of transfer payments (Social Security, Medicare, Medicaid, etc.), including payments to state and local governments.

HT: Tyler

Comments (4)

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  1. Buster says:

    It won’t get any better. Tax revenues are something like 75% of expenditure. It will get far worse as the Baby Boomer generation retires.

  2. Greg says:

    The future is scary.

  3. Amanda M. says:

    Check out this link that gives a visual on the debt crisis: http://www.wtfnoway.com/

  4. courtenay says:

    2012 IS coming..