Monday, April 09, 2007

Warning: Spoiler Alert

Curious about the economy over the next few decades? Kevin Hassett looks at the fiscal future:

According to the latest long-run outlook of the Congressional Budget Office, government spending may take up fully 50 percent of GDP by 2050.

Yet revenue will increase tremendously over the same time period. Revenue relative to GDP, currently a smidgen more than 18 percent, will climb to 23.7 percent by 2050 and extrapolate out to a whopping 27.5 percent by 2075. A spending binge is coming, and a good chunk of the revenue needed to pay for it is coming as well.

The bad news for fans of small government is this: Even if spending were reined in enough to keep it equal to revenue, the size of the government will increase by about 50 percent in the coming decades.

Why the big climb in revenue? There are three reasons. First, current law calls for the expiration of the Bush tax cuts in 2010. Second, the Alternative Minimum Tax, which isn't adjusted for inflation, sucks in more and more revenue over time. Finally, as the economy grows in real terms, more individuals get thrust into the top tax bracket.

Here's my question for the comments section: What do you think will really happen to government spending and tax revenue as a share of GDP over the next half century?