Facing America’s Long-Term Budget Challenges

Brian RiedlGrover M. Hermann Fellow for Federal Budgetary AffairsThe Heritage Foundation

Washington Now Spends $24,106 Per Household

$15,000

$17,000

$19,000

$21,000

$23,000

$25,000

1990 1992 1994 1996 1998 2000 2002 2004 2006

Fiscal Year

Infla

tion-

Adj

uste

d D

olla

rs

The Long-Term Problem 77 Million Retiring Baby Boomers Ratio of workers supporting each retiree:

1960 – 5-to-1 2007 – 3-to-1 2030 – 2-to-1

A Married Couples’ Burden in 2030 Rising Health Care Costs Medicaid Affected Too

Social Security, Medicare, and Medicaid Costs As a Percent of GDP

4.2% 6.0% 6.4%

3.0%

6.4%8.6%

2.8%

4.0%

1.5%

0%2%4%6%8%

10%12%14%16%18%20%

2006 2030 2050

% o

f GD

P

MedicaidMedicareSocial Security

8.7%

15.2%

19.0%

Option 1: Tax IncreasesPer Household & Translated Into Today’s GDP

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2007 2011 2015 2019 2023 2027 2031 2035 2039 2043 2047

Fiscal Year

Option 2: Other Program CutsYearly Budget Breakdown, Assuming No Tax Hikes or Budget Deficits

Social Security, Medicare, Medicaid,

and Net Interest on Earlier Debt

0%10%20%30%40%50%60%70%80%90%

100%

2006 2010 2014 2018 2022 2026 2030 2034 2038 2042Fiscal Year

% o

f Fed

eral

Bud

get

All Other Programs

Option 3: Continue Current Policies And Cover Shortfalls With Budget Deficits

OtherDefense

Social SecurityMedicaid

Medicare

Net Interest

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2010 2020 2030 2040 2050Fiscal Year

Fede

ral S

pend

ing

as a

% o

f GD

P

Option 4: Modernize Social Security, Medicare, and Medicaid

Reform is the only way to avoid the scenarios listed above. Delays only push up the final reform costs.

Long-Term Budgeting with Caps

Target Benefits to Needy

The Unaffordable Medicare Drug Entitlement

Conclusion

More Than Just Economics

Moral Questions of Generational Burdens and Fairness

The Burden Facing Today’s Young Workers