The way we currently measure our country’s indebtedness does not capture the amount of money government has borrowed from itself and the vastly larger amount of money government has promised in future spending through programs such as Social Security and Medicare. Nor does it take into consideration the government’s ability to raise taxes or reduce spending to cover these obligations. The fiscal gap does both.
- It is the present value difference between future projected spending (including servicing the official debt) and future taxes over an infinite time horizon.
- In 2012, the United States’ fiscal gap grew by $11 trillion to a mindboggling $222 trillion ― the largest of any country in the world relative to the economy.
- According to the latest generational accounting published by the International Monetary Fund in 2011, taxes on future generations would have to increase by 21.5 points to close the fiscal gap.