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

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