An aging population of retirees will put downward pressure on tax revenues and upward pressure on entitlement spending, propelling crippling deficits according to long-term CBO estimates.
Key Points:
Demographics represent a significant challenge for the country as the percentage of the 65+ population is forecasted to grow dramatically until 2032. This suggests a rapid increase in Social Security and Medicare enrollment, two very expensive programs which both have the potential to bankrupt the country.
The government’s financial condition as forecasted by the CBO is greatly stressed by aging demographics as identified in the table below. More elderly retirees mean less tax revenue and more entitlement spending. Notably, we see a nearly doubling of social security outlays as a % of GDP from 1972 to 2032. Worse yet, healthcare spending is poised to increase nearly 7x during the same period as all those elderly consume more services. All this means much larger deficits such that net interest as a % of GDP is expected to exceed defense spending by 2032. Of course, higher interest rates have the potential to further aggravate this problem.
