What John Boehner's Deficit Chart Means

At his press conference today, John Boehner showed this classic chart, in making his point that the U.S. faces a big spending crisis.

Speaker John Boehner

Jim Pethokoukis at AEI asks: What do we make of this chart?

Among his answers: Taxes might need to rise a little bit; Medicare reform needs to start NOW, and a lot of liberals aren't buying the CBO's analysis here.

Three alternate thoughts:
Medicare costs are making the red explode, because healthcare costs are surging. That seems like a tautology, but it's an important clarification. In terms of the overall impact on the economy, the "entitlement" is a distraction. The costs are going to be humongous whether the government pays for them or the private sector does. If we want to not see the red boom like that, then the underlying healthcare inflation needs to be bent down.
It's still not clear what the "problem" is. The insinuation is that deficits like that are unsustainable, but neither the chart, nor Boehner actually make that case. Yes it's conventional wisdom that deficits that large are a problem, but they might not be.
The chart assumes a bit of a fantasy world, where healthcare spending can grow like crazy (due to real growth and inflation) and yet nominal GDP continues along this normal glide path. The problem is, with healthcare getting that big, the denominator of the deficit/GDP ratio would grow significantly, and the inflation from healthcare would boost nominal GDP. Remember, these charts are CBO budget baselines, not real macroeconomic forecasts.

For more on Boehner's comments, see here >