Social Security is easy. Medicare isn’t. And keep in mind that because of the realities (the number of people paying into the system is decreasing and will continue to decrease until the 2040’s, whilst the number of people taking money out of the system increases until the same dates) the closer you get to the date where the cuts would have to be made, the amount of money required to prevent the cuts increases exponentially.
So, SS is easy TODAY; it’s not going to be nearly as easy in 20 years. Same goes for Medicare, but the amount of money to fix is several hundred percent larger that of SS, perhaps a thousand percent at this point.
At any rate, this paper was written by Drs. Jagadesh and Smetters (I believe they are at U Penn) for Paul O’ Neill when he was Sect of the Treasury under Bush. It is largely why Bush fired him, because O’Neill was determined to make the Admin face these problems, and at the time, Bush was sympatico with the Democrats in wanting to sweep them under the rug. The Wikipedia mentions this conflict:
A report commissioned in 2002 by O’Neill, while he was Treasury Secretary, suggested the United States faced future United States federal budget deficits of more than US$ 500 billion. The report also suggested that sharp tax increases, massive spending cuts, or both would be unavoidable if the United States were to meet benefit promises to its future generations.
At any rate, this is the report. Keep in mind that the events of 2008 made the problem MUCH worse; AND, the report was created before Medicare Part D made the problem much worse.
(I know you’re probably allergic to anything published by the AEI. However, this is NOT an AEI report; it is a government report which is based upon the reports of the Trustees of the SS and Medicare systems. The AEI just published it to prevent the Bush Admin from burying it. )
At any rate, from the report:
Based on OMB’s policy-inclusive budget projections, the federal government’s long-term Fiscal Imbalance is $44.2 trillion as of fiscal-year-end 2002. This is the amount of resources in present value that the government must produce, either by cutting spending or increasing revenues, in order to put the nation’s fiscal policies on a sustainable path. This value is more than ten times as large as the size of debt currently held by the public; it is also several times larger than similar values published elsewhere under a seventy-five-year projection horizon.
To fully eliminate the existing FI, wage taxes, for example, would have to be increased by 16.6 percentage points forever. Eliminating all discretionary spending immediately and forever would fall short by $1.8 trillion.
A couple of thoughts. First off, a 16.6% permanent increase in income taxes (and keep in mind that this was 2002, and 2008 and Med Part D made the situation much worse) would crash the economy. That’s across the board, not just on the rich.
This paper was condensed and repackaged for popular consumption in THIS book, written by Dr. Laurence Koltikoff and Scott Burns.
The Coming Generational Storm
In 2030, as 77 million baby boomers hobble into old age, walkers will outnumber strollers; there will be twice as many…
So, these are the documents that I base my views on. I find the economists’ arguments that the arcane way that the US does its accounting minimizes the fiscal challenge by several hundred percent to be persuasive.
Hope that helps.