Federal budget deficits

I've been reading a lot over the past few days about the current federal budgetary issues. One of the more interesting things I've found is this working paper from Alan Auerbach (UC Berkley economist) on the mid and long term debt projections. He calculates deficit projections under the assumptions of perpetuating the AMT and Medicare Doc fixes and compares it to the CBO scores. Essentially it shows that the CBO score for the budget likely underestimates total deficits over the next 10 years by about $5 trillion. And that's assuming Bush tax cuts expire as does stimulus spending. If those assumptions are reversed it adds another $5 trillion over 10 years.

But for me the real story is Figure 3 (page 22). Under every projection, revenues (as a percent of GDP) will be flat after 2013 and spending (as a percent of GDP) will linearly increase. All non-mandatory (i.e. non-social) spending will fall, as a percentage of the budget as more and more money (absolutely and proportionally) goes to providing social goods.

The good news is Auerbach is reportedly on Obama's short-list to replace Austen Goolsbee as the head of the Council of Economic Advisers. So if he's appointed, and he manages to avoid being captured by Washington interests, maybe he can bring some sense to the budget process.

Do we need to curtail federal spending? If so, how? The paper linked above doesn't make it totally clear, but the tables found here make it clear that the only sector of spending that is increasing (as a proportion of GDP) is mandatory social spending (Medicare, Medicaid, SS, SSDI, etc.). So, for those PVSers who support liberal federal economic policy, can you propose some way of making social spending sustainable?