In the Wall Street Journal, Stephen Moore says that if reforms to the tax code and other economic policies boost economic growth, we would have much less reason to worry about the federal debt. Assuming annual average growth of 3 rather than 1.9 percent over the next thirty years, he writes, would generate “new tax revenue to Washington of about $2.5 trillion each year. That money ought to be more than enough to pay all the bills and cover most of the unfunded costs of Social Security and Medicare.”
Higher economic growth would be a great boon for all kinds of reasons, and it’s certainly true that it could help with debt reduction. What complicates matters is that higher growth can also yield higher spending. More growth should mean higher wages, and Social Security benefit levels are tied to wages. As a result, the Social Security shortfall might even end up larger in terms of dollars (although not necessarily as a percentage of the economy). If we want spending and revenues to bear a reasonable relationship to each other in our future, there’s no way around structural reform to entitlements.