Wednesday, April 27, 2005

The grim fiscal outlook

Bruce Bartlett examines our Social Security and Medicare liabilities in terms of present value:
To make these very large numbers somewhat more concrete, Social Security's unfunded liability comes to 1.2 percent of GDP in perpetuity (1.4 percent without the trust fund) -- about what is currently raised by the corporate income tax. The comparable number for Medicare is 7.1 percent -- about what is raised by the individual income tax. And remember that these figures are for the unfunded portion of these programs, so they are over and above payroll taxes.

The chilling conclusion is that virtually 100 percent of all federal taxes, on a present value basis, do nothing but pay for Social Security and Medicare. Unless there are plans to abolish the rest of the federal government, large tax increases are inevitable.

Avoiding such tax increases is the best reason to reform Social Security now. It's too bad that President Bush made the Medicare problem so much worse before trying to fix Social Security.

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