States Face a Massive Fiscal Crisis

A new GAO report finds “the economic recession that blasted huge holes in state and local government budgets and rapidly rising health care costs are combining to create a long-term budget crisis for states that is so bad it would require massive tax hikes or spending cuts,” the Washington Post reports.

“The Government Accountability Office said in a report issued Friday that tax revenues as a percentage of gross domestic product will not return to the historical high reached in 2007, just before the recession hit, until 2058, according to its models.”

“At the same time, rising health-related costs borne by state and local governments, especially those incurred by government employees and retirees, are putting pressure on state budgets. State and local Medicaid expenditures and employee-related costs both grow faster than the gross domestic product, the GAO said. It estimated health-related costs will grow from about 3.9 percent of GDP this year to 7.4 percent by 2060.”

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