CUT AND PASTED FROM THE BULK OF BRUCE BARTLETT'S ARTICLE -- "The Real Social Security and Medicare Problem (and a Doable Fix)". THE NUMBERS -- MOST ESPECIALLY IN VIEW OF EVER EXPANDING OUTLET (MALTHUS WAS WRONG BRUCE) -- DON'T LOOK CATASTROPHIC OR EVEN PARTICULARLY THREATENING:
"Looking at Social Security, we see spending rising from 4.8 percent of gross domestic product to 6.2 percent by 2035, an increase of 1.4 percentage points."
"Another way to think about it is that the long term Social Security deficit is 1.2 percent of G.D.P., or 3.6 percent of taxable payrolls."
"Thus we could raise the Social Security tax rate from 12.4 percent, which it has been for the last few years, to 16 percent immediately and forever, or we can assume general revenue financing for the unfunded liability and would have to increase federal income taxes from 6.2 percent of G.D.P. to 7.4 percent, about a 30 percent increase in the amount of income tax revenues the government needs to collect."
I've always said that if the so-called trust fund peters out (it wont; a 5-year fund needs to be maintained -- all ever needed -- see below) the same tax payer money that was cashing bonds with income tax to feed retirees will simply switch to a higher payroll tax (with accompanying drop in income tax). Instead of 75% payroll tax and 25% income tax, retirees will be paid through 100% payroll tax -- only difference, a bit less progressive.
The only practical effects of the trust fund as far as I can see is that it allowed politicians to set on payroll tax rate for 60 years so they would not have to face endless raises and tax payer wrath which payroll tax surpluses on the front (when average income was lowest) made overall taxes more regressive (capped, flat tax paying for on-budget outlays) and more progressive on the end.
Average income doubles twice as fast as population (over 40 years compared to 80 -- worker-to-population ratio stabilizes after 2050) so there never was any retiree revenue crisis. If there is any funding problem it is cause by the average worker's (median) income growth not keeping even close pace with overall income.
For instance, my Social Security payments are supposedly calculated factoring in income growth. But my 1968 income is not credited as double my $25,000 to $50,000. I get credited for only $33,000 because the formula uses average persons' wages instead of overall growth. In the unbalanced US labor market median income only grew 20% as average income doubled! The minimum wage actually halved by early 2007!! Get the American labor market back in balance and payroll taxes will overflow.
BTW, While we are throwing all those trillions of dollars around let's remember that doubled population and quadrupled per capita income 80 years out means GDP looks to be 8 X $15 trillion = $120 trillion EVERY year by then.
AGAIN -- ESPECIALLY IN VIEW OF NORMAL ECONOMIC GROWTH:
"Part A pays for hospital visits and is financed by the Medicare portion of the payroll tax, which is 2.9 percent. (That leaves the total payroll tax rate, at 15.3 percent, ignoring the temporary cut enacted last year as a stimulus program.)"
"The 2009 report, before passage of the new health care law, had estimated a long-run unfunded liability of $36.4 trillion, which is equivalent to 2.8 percent of G.D.P. forever and would have required a payroll tax increase of 6.5 percent. (Also Table III.B10.)"
"The long term general revenue contribution to Medicare Part B is estimated at $22.4 trillion or 1.5 percent of G.D.P. in perpetuity. (Table III.C15.)"
"The unfunded cost of this program is estimated at $16.1 trillion, or 1.1 percent of G.D.P. in perpetuity. (Table III.C23.)"
"To put these programs on a sound footing, federal income taxes would have to rise from 6.2 percent of G.D.P. to 10 percent, an increase of 61 percent."
Doctors' incomes have not DOUBLED in real terms since 1968 while average (per capita) income has. So doctor's incomes cannot be blamed for the doubling and re-doubling and re-redoubling of health care. As one doctor put it to me: in his other career as a Navy helo pilot everyone can see the three engines and the sixty miles of wiring in the "new beast" Black Hawk, but when they go to the hospital all they see is the bed.
Where the money is going to come from is another question. The average person's (median) wage only grew 20% while average income doubled. The minimum wage actually dropped in half by early 2007 (now $3/hr lower than under LBJ after the "big" Demo raise). Meantime, the linebackers and TV news anchors and CEOs who now get paid 25X what they made back when (instead of only 2X) don't have 25X as many livers and bones to mend.
Like most problems in this country it comes down the the totally out of balance -- as in thoroughly de-unionized -- US labor market. Decades old proven answer: legally mandated, sector wide labor agreements -- standard practice all over the better paid OECD world, not to mention the second-world (Argentina), even the third-world (even Indonesia). Supermarket workers and airline workers would kill for sector-wide agreements -- good political place to start.
Doctors fees are 20% of Medicare (not overall economy's). Private insurance costs (whole economy) quoted as high as 30%? Where to start cutting? :-)