Undermining the American Dream

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Heritage Foundation economist Bill Beach explains how the federal government's tax-and-spend policies undermine the American Dream at a meeting of the Atlanta Committee for Heritage on June 3, 2010.

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Undermining the American Dream

  1. 1. Will Growing Government Debt Undermine the American Dream? The Implications of Mounting Federal Debt and Spending for the Debt Paying Generation Presentation by William Beach Director, Center for Data Analysis The Heritage Foundation June, 2010
  2. 2. If Anything, the First Two Years of the Obama Presidency Promise to be Historic <ul><li>Let’s review some highlights: </li></ul><ul><ul><li>Continued Bush policy of bailing out Wall Street = $896 billion ($456.6 spent) </li></ul></ul><ul><ul><li>Bailed out Detroit = $100 billion ($79.7 spent) </li></ul></ul><ul><ul><li>Enacted two economic stimulus bills = $1.1 trillion </li></ul></ul><ul><ul><li>Passed a comprehensive reform of health care = at least $987 billion (10-year cost w/o Doc Fix) </li></ul></ul>
  3. 3. This Spending Means Mounting Debt Unfortunately for the Generation Aged Under 40, Revenues are Not Keeping Up with Outlays
  4. 4. The Obligations of the Debt Paying Generation <ul><li>Total debt expected to grow from $7.5 trillion in 2009 to over $15 trillion by 2020. </li></ul><ul><ul><li>That is from 53% of GDP in 2008 to 67% of GDP in 2019. In 2008, debt equaled 41% of GDP </li></ul></ul><ul><li>Tsunami of debt from Social Security, Medicare and Medicaid will push total debt to 320% of GDP in 2050 and 750% in 2083 </li></ul>
  5. 5. How Much is One Trillion Dollars? <ul><li>1,000 billion </li></ul><ul><li>$1,000,000,000,000 (that’s 12 zeros) </li></ul><ul><li>At $42 million per year, LaBron James would need to work 23,809 years. </li></ul><ul><li>Average life in the U.S. lasts 2.4 billion seconds </li></ul><ul><li>One billion seconds ago = 1977 </li></ul><ul><li>One trillion seconds ago = 30,870 BC </li></ul><ul><li>One trillion seconds from now = 34,890 AD </li></ul>
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  11. 11. Let’s Focus on Health Care What Are You Getting? <ul><li>A new entitlement program: 34 million more on entitlement rolls. </li></ul><ul><li>Higher costs than advertised: </li></ul><ul><ul><li>$250 to $400 billion for “Doc Fix” (not counted in original cost) </li></ul></ul><ul><ul><li>Count reductions in Medicare benefits as savings for working age reform </li></ul></ul><ul><ul><li>35 million lose job-based health care, which adds $400 billion </li></ul></ul><ul><li>Other costs plus these add $500 billion in first 10 years above $980 billion, and $1.1 trillion in next 10 years. </li></ul>
  12. 12. What Do You Get? <ul><li>All Americans will have to prove to the IRS that they have health insurance or pay a fine. </li></ul><ul><li>Young people will have to pay higher premiums </li></ul><ul><li>However, the penalty of about $1500 will be less than premiums. </li></ul><ul><li>So, young people will probably pay the fine rather than insure themselves. </li></ul>
  13. 13. Debt Always has to be Paid <ul><li>Payment can be made by </li></ul><ul><ul><li>Raising taxes </li></ul></ul><ul><ul><li>Lowering future spending </li></ul></ul><ul><ul><li>Inflation or dollar devaluation (debt repricing) </li></ul></ul><ul><ul><li>Debt repudiation </li></ul></ul>
  14. 14. Unfortunately, we have very big debts to come, and our incomes won’t grow as fast as our spending…
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  18. 18. Let’s Get Personal: Repaying this Debt Will “Down Size” the American Dream <ul><li>If you are in your early 20s, the “economic stimulus” debt alone will cost you $280 per month for the rest of your life = buy and trash an iPod a month. </li></ul><ul><li>Your generation’s average tax rate will double and your children will pay three times as much. That probably means: </li></ul><ul><ul><li>First home purchase later in life. </li></ul></ul><ul><ul><li>Marriage later in life and later to start to families. </li></ul></ul><ul><ul><li>Longer time to pay off student loan debts. </li></ul></ul><ul><ul><li>Slower earnings growth over your lifetime. </li></ul></ul><ul><ul><li>Less savings for education, health care, and retirement. </li></ul></ul><ul><ul><li>Smaller wealth transfers to your children and grandchildren. </li></ul></ul>

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