Salient to Investors:

Caroline Baum writes:

  • The $1.2 trillion of revenue Obama hopes to generate by raising taxes on the rich represents only a small down payment on a budget solution. The real source of the problem is runaway growth in entitlements, especially health care.
  • There are no real cuts on the table even from the Republicans. ‘Spending cuts’ are only reductions in the growth rate of outlays as prescribed under current law. Nothing is cut.
  • Nominal federal outlays fell by 1.7 percent in 2012, the first outright reduction since the huge post-World War II declines in 1946- 1948. Inflation-adjusted spending has shown only a handful of year-to-year declines, all small, in the decades since the post-war demobilization.
  • Outlays have topped 24 percent of GDP in each of the last four years, the highest by far since WW II and well above the 20 percent historical average.
  • Benefits to which Americans have become accustomed, especially for the elderly, exceed the tax revenue needed to pay for those services.

Michael Tanner at the Cato Institute said that by 2022, Medicare, Medicaid and Social Security alone will consume 54 percent of the federal budget, versus 44 percent now, with the real explosion of entitlement costs taking place just outside the 10-year budget window.

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