Those three programs already account for nearly one-half of all spending (excluding interest on the debt). The challenge posed by this growth of spending will be compounded by the projected slowing growth of the labor force that is a direct result of the aging of the U.S. population. The number of people who receive retirement and health benefits will increase just as the growth of revenues from income and payroll taxes slows down.
If changes are not made, the nation’s debt is projected to surpass the immediate post-World War II record in less than 20 years, and it would be about seven times the size of the economy in 75 years. That, of course, is impossible. Long before the federal debt reached such a level, the United States would experience a financial crisis that would dwarf what the country has recently experienced, and with more lasting consequences.
The budgetary arithmetic may be simple, but making the necessary adjustments will not be. If policy changes are made, spending and revenues can gradually be brought into alignment, over several years. The required policy changes will entail some painful decisions, and action would have to begin soon. If such changes are delayed too long, it will not be possible to put the federal budget on a sustainable course before a fiscal disaster becomes inevitable.
In the face of the looming fiscal crisis, the John D. and Catherine T. MacArthur Foundation asked the National Academy of Sciences and the National Academy of Public Administration to undertake a comprehensive study to identify how to put the federal budget on a sustainable path; see Box 1-1 for the full charge to the committee. In response to that charge, the two organizations appointed our committee. (See Appendix H for biographical sketches of the committee members and staff.) The rest of this chapter discusses the size and nature of the budget challenge, how it arose, and its implications. Subsequent chapters discuss in detail how to approach solutions, what some major policy options look like, and how people of differing views might combine these options to put the budget on a sustainable long-term path. Chapter 2 provides a framework for thinking about how to address the fiscal challenge. Chapter 3 provides practical tests of fiscal prudence that can be applied to the federal budget or alternatives. Chapters 4 through 9 lay out major building blocks of possible corrective action—in three major areas of spending and in revenues—and then illustrate how such policy options can be combined in order to put the federal budget on a sustainable path. The results demonstrate that there are a wide range of possible ways to bring revenues and spending into alignment over the far horizon. Chapter 10 describes possible reforms of the budget process to make it easier to address the long-term fiscal challenge. Chapter 11 describes how citizens and leaders can use the results of this study as a basis for constructive analysis and discussion of alternatives.