By Arnold Kling
According to Thomas Saving, an economist who is one of the trustees of Social Security and Medicare, we are already taking money from general revenue to fund the deficits in those programs.
This year, for the first time in recent memory, Social Security and Medicare combined will spend more than the programs take in. This will require a transfer from the Treasury of 3.6% of federal income tax receipts. That figure will grow rapidly. In just 15 years, in the early stages of the baby boomers’ retirement, we will be transferring more than 25% of federal income tax revenues to cover the funding needs of Social Security and all parts of Medicare. By 2030, more than half of all federal income tax revenues will be required to pay projected benefits of these programs under current law. By 2040, the figure will be two-thirds, and by 2069, funding shortfalls will exhaust all federal income tax revenues…
Due to the changing demographic structure and rising expenditures on medical care, the share of the nation’s output consumed by the elderly will rise. It is this rising share of the economy, financed in large part by Social Security and Medicare transfers, that will drive a growing tax burden. Saving more now for retirement reduces the burden on future taxpayers while at the same time increasing the nation’s capacity to produce.
This generation of workers faces a clear choice. Will they tighten their belts a bit and save more? Or will they ask their children and grandchildren to choose between reneging on promises to retirees, going without government services, or paying exorbitant tax rates?
For Discussion. Is telling the public that they need to spend less and save more the real “third rail” of American politics?