With the release of House Budget Committee Chairman Paul Ryan’s (R-WI) proposed 2012 budget, Washington is abuzz with support, attacks, praise and ridicule. Above it all, however, is the fiscal disaster that Ryan is trying to avoid with his proposal. As Ed Morrissey noted in a recent presentation at The Heritage Foundation, everyone in Washington knows that entitlements need fixing and fast — they simply choose to ignore it, or they did until Ryan’s budget came out.
Absent significant reform to entitlements and defense spending (about two-thirds of today’s spending, and growing), young workers can expect to pay a historically unprecedented percentage of their income toward the national debt. Two major drivers of this debt are Social Security and Medicare, currently 34% of the budget. With 10,000 people retiring every day for the next 19 years, and the current 31 million retirees expected to grow to at least 51 million by 2030, these programs will indeed grow significantly.
Many Democrats, such as Senate Majority Leader Harry Reid (D-NV) and Rep. Anthony Weiner (D-NY) want to pretend Social Security is fine, since it has $2.5 trillion in assets. Unfortunately, those assets are the same IOUs the federal government owes China, Japan, bond holders and others. Should the U.S. economy follow the path of Napoleonic France, Rome, and the USSR into failed fiscal policy collapse, those IOUs will be worth less than the paper they are printed on.
If the laws stay as they are, and the Social Security Administration’s (SSA) intermediate projections are accurate, payroll taxes will need to rise by 28% or benefits will need to be cut by 22% only 26 years from now. This assumes the SSA’s projections are correct, which James Agresti of Just Facts shows has often not been the case. This means the Social Security tax rate will rise from 12.4% to 15.87% by 2037.
When it comes to Medicare, proponents of the Patient Protection and Affordable Care Act (PPACA) like to claim the law helps increase the longevity of the program. This is patently false, as outlined by two reliable sources: the actuaries of Medicare itself in their 2010 baseline report and Health and Human Services (HHS) Secretary Kathleen Sebelius in recent Congressional testimony.
By now, Sebelius’s testimony has made its way around the conservative blogosphere and media, so we won’t go into much detail. Essentially, Sebelius admitted that the $500 billion in Medicare cuts over the first ten years of the health care reform law are being used to both add to the lifetime of Medicare and pay for the cost of reform. Since these funds cannot actually be utilized twice, the purported $500 billion savings to Medicare is nothing more than accounting gimmickry.
Since the PPACA won’t help Medicare, what does the future of the program look like? According to the Medicare actuaries, this is how bad things will get:
- Medicare enrollment will more than double from 47,351 recipients in 2010 to 95,863 recipients in 2055. Meanwhile, costs in 2019 (never mind 2055) will be more than double 2010’s expenditures of $531 billion.
- The share of Medicare spending from the general fund will rise from 43.3% to 50.5% between 2010 and 2080, and payroll taxes as a percentage of Medicare spending will drop from 39.7% to 25.7%.
- The Medicare actuaries estimated, in their alternative scenario (a.k.a. realistic scenario, with political implications included, as opposed to the aforementioned baseline, which is based upon current law), that payroll taxes for Medicare could easily go from the current 2.9% to 9.2%
All told, we estimate that the total taxes in the near future, just for Social Security and Medicare, will rise from 15.3% of income to 25.07%* — slightly under two-thirds higher than today. This means that short of substantial reform, the retirements of the Baby Boomers and Greatest Generation will literally be financed on the backs of their grandchildren and great-grandchildren, young people who will be members of the Debt-Paying Generation. While no one should relish the prospect of reducing the benefits of people who have worked hard for 30, 40, 50, or even 60 years, the alternative is to hammer young Americans with debt so large that massive tax increases, severely reduced entitlement receipts, and a lifelong recession are likely outcomes.
*We should note that both of the SSA and Medicare actuary estimates are conservative estimates; things could easily become much, much worse.
Kavon Nikrad is the founder and managing editor of Race42012.com, a conservative campaigns and elections site. Dustin Siggins is a former contributor to Race42012.com and is co-authoring a book on the Debt-Paying Generation with William Beach of The Heritage Foundation.
