can we afford social security and medicare for 76 million boomers? (david c. john)

8/7/2019 Can we afford Social Security and Medicare for 76 million boomers? (David C. John)

1/14

The Budget and Entitlements:

Time to Take Action

David JohnThe Heritage Foundation


2/14

Federal spending will more than double, driven

by Medicare, Medicaid and Social Secuirty

Medicare

Medicaid

Social Security

Other

Net Interest

45-Year Historical

Level of Tax Revenue

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1975 1985 1995 2005 2015 2025 2035 2045

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total Federal Spending and Tax Revenue as a Percentage of GDP

Defense

Source: Calculations based on Congressional Budget Office (CBO) and Medicare and Social Security TrusteesData (discretionary spending held constant).


3/14

The Big Three Entitlements Will Grow

Dramatically As Nation Ages

Med i

re

2.

Med i

re

3.

Med i

re

4.

Med i

re

6.

Med i

re

8.

Med i

re

9.

Med i

id

1.

Med i

id2.3%

Med i

id

2.8%

Med i

id

3.4%

Med i

id

4. %

Soc i

l Securit

4.4%

Soci

l Securit

4.

%

Soc i

l Securit

.

%

Soc i

l Securit

6.6%

Soc i

l Securit

6.9%

Soc i

l Securit

6.9%

Med icaid

1.

%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

2005 2010 2020 2030 2040 2050

Spendingon ree Entitlement asa ercentageof

Source: Spendingand evenuesfrom ong-Term udget utlook, ecember 2005 (Scenario2 ata), 2006Social Securit

and Med icareTrustees

eport.

Total = 9.

%

Total = 18.2%

Total = 15.9%

Total =12.5%

Total = 19.9%

Total = 8.6%


4/14

Absent action under current law deficits not a problem

soon but then skyrocket to unprecedented levels

Federal eficit s ercentage f

Federal eficit

45-

ea r

Historical A

erage

-5%

0%

5%

10 %

15 %

20 %

25 %

30 %

35 %

1962 1972 1982 1992 2002 2012 2022 2032 2042

Source: lculationsbased n ngressional ! ge t " ffice ( " ) nd # edicare nd $ % ial $ ecurityTrustees ta (! iscretionaryspending & eld % nstant).


5/14

Entitlements will crowd out everything else and

collide with historical long-term level of taxes

Medicare

Medicaid

Social Security

Historical Level of

Tax Revenues

0%

5%

10%

15%

20%

25%

1965 1975 1985 1995 2005 2015 2025 2035 2045

0%

5%

10%

15%

20%

25%

Source: Spending and Revenues from CBO Long-Term Budget Outlook, December 2005 (Scenario 2 Data),2006 Social Security and Medicare Trustees Report.

Three Major ntitlements and Tax Revenues as a Percentage of GDP


6/14

Med icare

Med icaid

Soc ial Securit

'

( t ) er

0et I

1terest

45-2

ear Hi3torical

4 eve l of5

ax 6 evenue

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total Federal Spendi gand ax evenueasa ercentageof

7efense

Source: 8 alculationsbasedon 8 ongressional 9 udget ( ffice (8 9 ( ) and Med icareand Soc ial Securit'

5

rustees 7 ata (di 3 cretionar

'

3 pendi 1 g ) eldconstant).

Even eliminating defense will not solve the

problem


7/14

Bush 2008 Medicare proposal has significant

savingstrimming 2014 long-term costsTotal ederal Spending and Tax Revenues as a Percentage of GDP

MedicareMedicaid

Social Security

Defense

Other

Interest Tax Revenue

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Medicare

Medicaid

Social Security

Other

Net Interest

45 -@

ear Historical

Level of Tax Revenue

0%

5%

10 %

15 %

20 %

25 %

30 %

35 %

40 %

45 %

50 %

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

0%

5%

10 %

15 %

20 %

25 %

30 %

35 %

40 %

45 %

50 %

Total ederal Spending and Tax Revenue as a Percentage of GDP

Defense

Source: Calculationsbased on Congressional Budget O ffice (CBO) and Med icare and Social Security TrusteesData (discretionary spending held constant).


8/14

2008 House Budget: No Entitlement Savings,

but huge tax increases

Total d al p nding andTa nu s as a c ntag ofG

dicadicaid

ocial cu ity

fense

Other

Interest

Ta evenue

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

M edicare

M edicaid

A

ocia lA

ecurity

O ther

Ne tInterest

45 -B

earHisto rical

Lev elo fTaC

D e ve nu e

0%

5%

10 %

15 %

20 %

25 %

30 %

35 %

40 %

45 %

50 %

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

0%

5%

10 %

15 %

20 %

25 %

30 %

35 %

40 %

45 %

50 %

To tal ederal pending andTa ev enue as a ercentageo f G

E ef ense

S ourc e: Calculations basedon Cong re ss ional BudgetO ffice (CBO) an dM edicare an d So cia lS ecurity T ruste es E ata (discretiona ry sp ending held co nstant).


9/14

Projected Federal Tax Revenue

for Three Tax Policy Scenarios asa Percentage of GDP

But under current law taxes will rise sharply thanksto pre-Bush laws, despite Bush tax changes

Current Law: F ushG

ax

CutH

Expire

With F ushG

axCutH

Extended

With F ush G

axCutH

Extendedand AMT I ix

16%

18%

20%

22%

24%

2005 2015 2025 2035 2045

Pr jected ederal ax evenuefor hree axPoli y enari as

aPer entage f P (2005-2050)

P Qur

Re:CBOL Q S g-TermBudget Outlook, T ecember 2005and Budget and ER Q S Q mi R Outlook, January2007.

Average G

axBurden,1966-2006 = 18.2%

HighestG

axBurden i U U.V

. HiH

t W ry = 20.5%


10/14

Med icare

Med icaid

Soc ial SecuritX

Yther

Net I terest

45-a

ear Hi b torical

Leve l ofc

ax d evenue

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Total Federal Spendi gand ax evenueasaPercentageof P

eefense

Source: CalculationsbasedonCongressional BudgetY

ffice (CBY

) and Med icareand Soc ial Securit

X

c

rustees

eata (di

bcretionar

X

b

pendi

gheldconstant).

Raising revenue to balance the budget would lead toEuropean level taxes


11/14

But European-level taxes = European-level growth

3.3%

2.7%

2.1%

1.3%1.4%

2.2%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

U.S. Sweden France Italf

ger

hany EU-15

Real P r wt Over Ten- ears (1995-2005)

Source: OECi inFigures,2006-2007Edition.


12/14

Slow European-style growth = Lower incomes in US

$41,900

$32,700

$30,200

$28,500

$29,800 $29,900

$33,264

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

U.S. Sweden France Italp

qer

rany EU-15 Alabama

Source: Cs t u

trp

q v

Pdatafrs r

OECv inFigures,2006-2007Edition;State q SPdatafr s r BEA.

Pper Capitafor 2005 (UsingC rrent PPPs)


13/14

Slow European-style growth = Unemployment

5.1%

7.8%

10.0%

7.8%

11.2%

8.3%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

U.S. Sweden France Italw

xer

yany EU-15

Source: OEC inFigures,2006-2007Edition.

U empl ent Ratefor 2005


14/14

Conclusion: Take Action on

Retirement Entitlements

Amend the Medicare drug bill

Raise the retirement age

Target Medicare and Social Security to thosewith most need

Transform entitlements into 30-year

budgeted programs, balanced against otherneeds

Measure impact of policy changes on long-term obligations

can we afford social security and medicare for 76 million boomers? (david c. john)

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