Arnold Kling  

Entitlement Arithmetic

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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?


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CATEGORIES: Social Security



TRACKBACKS (4 to date)
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The author at The Liberal Order in a related article titled The Cost of Privatizing Social Security? writes:
    Austan Goolsbee is better than this. Under that plan, workers could invest as much as 2.5 percent of their earnings -- or about 40 percent of their share of Social Security taxes -- in private accounts, which Goolsbee anticipates would [Tracked on September 22, 2004 8:06 AM]
The author at Catallarchy in a related article titled And So It Begins writes:
    Via EconLog comes this frightening fact from the WSJ: 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 ... [Tracked on September 23, 2004 1:12 AM]
The author at Right Mind in a related article titled You Call This Health Insurance? writes:
    TITLE: You Call This Health Insurance? URL: http://right-mind.us/archive/2004/10/03/291.aspx IP: 199.245.242.5 BLOG NAME: Right Mind DATE: 10/03/2004 09:27:25 AM TITLE: You Call This Health Insurance? URL: http://right-mind.us/archive/2004/10/03/291.aspx IP: 199.245.242.5 BLOG NAME: Right Mind DATE: 10/03/2004 09:27:25 AM [Tracked on October 3, 2004 9:27 AM]
The author at Right Mind in a related article titled You Call This Health Insurance? writes:
    TITLE: You Call This Health Insurance? URL: http://right-mind.us/archive/0001/01/01/291.aspx IP: 199.245.242.5 BLOG NAME: Right Mind DATE: 10/04/2004 12:31:03 PM TITLE: You Call This Health Insurance? URL: http://right-mind.us/archive/0001/01/01/291.aspx IP: 199.245.242.5 BLOG NAME: Right Mind DATE: 10/04/2004 12:31:03 PM [Tracked on October 4, 2004 12:31 PM]
COMMENTS (8 to date)
Tom writes:

Is telling the public that they need to spend less and save more the real "third rail" of American politics?

No. If people are given the straight facts, they'll understand that there's no more free lunch. Of course, getting the facts to people without distortion will be the challenge. The last-ditch defenders of Social Security and Medicare, who don't want to reduce those entitlements, will bluster ("destroying the social safety net") and obfuscate ("the trust fund will last another X years"). The only way to deal with bluster and obfuscation is to keep hammering at the facts and spelling out their implications. Whether that will happen will depend on who's elected president on Nov. 2, IMHO.

William Woodruff writes:

Is telling the public that they need to spend less and save more the real "third rail" of American politics?

I have already suggested such, but was berated by someone on this board as being un-american !

Seriously, the growing burden of these entitlements are troubling, and I believe the ruling class will be judged poorly by history. However, I honestly believe the American public (collectively and individually) prefer the 'head in the sand' approach to the burden of these entitlements and the implication for future tax policy.

William

Mark writes:

Of course, the inclusion of Social Security is a bit of a red herring, as it's Medicare that has the current deficit, not Social Security.

Patrick R. Sullivan writes:

In your post "Outsourcing=Economic Activity", Arnold, you wrote:

"It is interesting to note that in heavily regulated industries, such as medicine, little outsourcing takes place."

Maybe, just maybe, the crisis in Medicare might be the impetus to change to a much less regulated medical care system. I know from personal experience (a former girlfriend, and a former sister-in-law) that Registered Nurses have a lot of knowledge that could be applied without an MD's oversight, and that Pharma Sales Reps know more about what their drugs do than the Drs. who have to prescribe them.

Boonton writes:
The last-ditch defenders of Social Security and Medicare, who don't want to reduce those entitlements, will bluster ("destroying the social safety net") and obfuscate ("the trust fund will last another X years").

Who are these last ditch defenders? It would seem the current administration is one of them. Actually, they would be worse because they have committed themselves both to expanding the entitlement & decreasing current savings.

Lawrance George Lux writes:

Your hypothesis is entirely wrong! The American people realize that the system of retirement in this Country must be changed, but find the obstruction to be the Government itself. They are told to Save, but they witness Business and Wealthy escaping taxation, while their taxes--Federal, State, and Local--continue up. The Job protection of their Grandparents' Age has disappeared, with the good Jobs being outsourced. It is hard to Save when taxes rise, and every time you get a good position, you are Laid Off or Outsourced. The Walmart model does not help, only keeping Price raises from becoming crippling in the face of increased Expenses elsewhere--Fuel, Utilities, Taxes, and Insurance.

The real, total, absolute 'third rail' in this Country must be "Means-testing' any and all Entitlements, such given only with found need. Economists still try to insist that SS taxes are not really taxes, and All should have access wheither they need such Entitlement or not. lgl

Robert Schwartz writes:

Thomas Saving? Who are the others Joe Social and Bill Security?

shamus writes:

Outsourcing is becoming much more of a trend in medicine. The Wall Street Journal ran a front page article a few weeks ago about how people are taking 14 hour plane trips to India for medical treatment.

The "crisis" in Medicare results from government imposed inefficiencies. Medicine is the least efficient business segment in the US. For example, bar codes have been in use for decades in the US, but hospitals are only now considering their use. Medical care will eventually either be opened to free market competition, or be taken over and run as a government enterprise. Today we have the worst of both worlds.

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