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Apr 24, 2007
The Social Security and Medicare Trustees just issued their annual report. The results are very bad. The government has promised far more benefits than we can pay for at current tax rates.
The unfunded liability in Social Security and Medicare over the next 75 years is $38.6 trillion. Looking indefinitely into the future, the unfunded liability in these two programs is $87.9 trillion, almost six times the size of the US economy.
Members of Congress will not have to wait long to experience the practical effects of all of this. Until a few years ago, Social Security and Medicare combined were taking in more in revenue than they were paying out in benefits. That situation has been reversed, and the combined deficits in the two programs are now claiming about 6% of other federal revenues. In just five more years, they will require 10%. That means: in five years the federal government will have to stop doing about 10% of the (non-entitlement) things it has been doing in order to balance the budget and keep its promises to the elderly.
As more and more baby boomers reach retirement, the financial picture will deteriorate rapidly:
- By 2020, spending on Social Security and Medicare will require more than 1 in 4 general federal revenue dollars.
- By 2030, about the midpoint of the baby boomer retirement years, these two programs will require almost 1 in every 2 general federal tax dollars.
- By 2050, they will require nearly 3 in every 4.
- Eventually, the deficits in these two programs will absorb the entire federal budget, if tax rates remain at their historical levels.
To view Tom Saving's presentation click here.
4 Responses to “Another Scary Forecast”
April 25th, 2007 at 1:51 pm
Medicare Going Broke? Not Part-D.
The Medicare Trustees released their annual report today, and the news isn’t good. It seems that the program can’t be sustained financially without serious reform:
Medicare’s Hospital Insurance Trust Fund is projected to be exhausted in 2019 … …
April 27th, 2007 at 3:02 pm
Political leadership seems to not exist. The good work you have done,
others as well, seems to fall on politicians’ deaf ears. The prognosis
is probably to raise taxes and cut benefits, making bad systems worse.
It’s not from a lack of trying.
May 1st, 2007 at 1:31 pm
Upon reading John Goodman's "Another Scary Forecast," in which he wrote that "Looking indefinitely into the future, the unfunded liability in these two programs is $87.9 trillion, almost six times the size of the US economy," I jumped into my car, drove up to the Verrazano's Narrow's Bridge on Staten Island, NY, and climbed high upon one of its spans, from there to jump into the waters hundreds of feet below. After all, who wants to live in the scary future painted by Brother John? Who wants to live with an unfunded debt six times our GDP? But, standing there up high on the span, a voice came to me from the clouds, beaming the simple query: "Why relate unfunded future debt to today's GDP? GDP will grow!" Wow–economist though I am, I had completely forgotten it! How smart is it actually to related an unfunded debt calculated from here to eternity to today's GDP? Luckly, as always, I had my laptop with me on that span, just in case I wanted to do one more calculation or graphs. Searching the net, I found that, on average, during the past 40 years US GDP per capita in real terms has grown at about 2% per year, although there have been wiggles around that trend line, with slower- and faster-growth periods. Let's make that 1.5% only for the next 50 years. Today, GDP per capita is about $40,000. At only 1.5% compound growth for the next 40 decades or so, the folks running the country in 2050 will enjoy a GDP per capita of about $76,000 in 2050, in today's dollars — on helluva lot more than we do today! Even if then there are more elderly around then, and health care is more expensive per capita than it is today, I am not sure I should kill myself today worrying about the folks running the country in 2050. Sure, they may have to devote a larger percentage of GDP per capita to the elderly than we do now, which means that they most likely will have to pay added taxes, or cede GDP to the elderly through private contracts. Either way, they'll have to feed the elderly, house them and care for them, unless they can put them on an ice floe upon retirement. But by my reckoning, the little critters running the country then will still have a lot more non-Medicare, non-Social Security GDP per capita for everything else than we have now. Why, then, would I jump off a bridge over their "plight"? So I got off the bridge, got into the car, drove home and had a Martini. Problem solved, in my mind. And I refocused on the hard-working waitress today, struggling with medical bills for her sickly child, always tottering on the brink of bankruptcy, in spite of working seven days a week. I also worried about our soldiers, especially on what awaits them when they come home — and the country's general indifference to these ones. I do lose sleep over these issues — real issues. Uwe Reinhardt Princeton University
June 5th, 2008 at 8:57 am
“And I refocused on the hard-working waitress today, struggling with medical bills for her sickly child, always tottering on the brink of bankruptcy, in spite of working seven days a week. I also worried about our soldiers, especially on what awaits them when they come home — and the country’s general indifference to these ones. I do lose sleep over these issues — real issues. Uwe Reinhardt Princeton University”
Were you the one whispering these tear jerker stories into Hillary’s ears? She makes it sound as if most Americans were in this situation….
I prefer to make insurance affordable by removing state mandates and by allowing purchasing of insurancce contracts from all states. Then the waitress could afford insurance. That would be a real solution to a real issue.
Converting 1/6 of our economy into a socialistic style single payer system would create a huge inflexible monopsony with all it’s most predictable woes of infexibility, cost overruns, discouraging of performance and rationing of services. Thank you, but no thank you. I grew up and trained in Germany and after seeing enough of socialized medicine I am glad to practice medicine in the US.