To pay for the increases in federal health spending promised 75 years from now, federal income taxes that year would have to be 175 percent higher than they are today. If you don’t like that idea, how about tripling the 15.3 percent bite that Uncle Sam takes out of every worker’s paycheck? Or, if you would prefer to spread the increase across all federal revenue sources, it would require that each one be increased by 75 percent (figure 20.7a).
As I’ve explained repeatedly, the alternative fiscal scenario is the most credible current projection of how much we will have to pay for Medicare, Medicaid, and Exchange subsidies under the Affordable Care Act. Even the actuarial experts who work for the government do not believe the baseline forecast. Yet the percentages I cite above greatly underestimate the size of the tax rate increases actually needed to raise the revenue to cover these promises, since they do not take into account the behavioral effects of higher taxes. I assure you that increasing federal income tax rates by 175 percent will not produce a 175 percent rise in income tax revenues. So think of all these figures as very conservative estimates of the tax increases looming over the horizon should we fail to get health entitlements under control.
Ask all your friends how comfortable they would feel imposing such punishing tax levels on their grandchildren. And if there’s no public sentiment for raising taxes by the gargantuan amounts required, then why are today’s policymakers making such promises? And if there’s no credible way we can tax our way out of this mess, why hasn’t the president offered a bold plan to substantially dial down on our promises (e.g., increase the Medicare retirement age) or fundamentally reform Medicare? The economy assuredly is a critical issue in the upcoming election. But well-informed voters also should be demanding that those wishing to inhabit the Oval Office answer some very tough questions about health entitlements as well.
Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research, an adjunct scholar at AEI, and affiliated senior scholar at the Mercatus Center at George Mason University. The charts shown are from his new book American Health Economy Illustrated, to be released later this month by AEI Press. See PowerPoint version of Figure 20.7a and Excel spreadsheet containing projected federal healthcare obligations for data, sources, and methods.
What would the US financial situation look like in proportion to a family with $50,000 of disposable income after tax? This is easier to understand and more frightening than the huge, official figures.
Mary Meeker is a partner at Kleiner Perkins, a large and respected venture capital fund. Her work is analyzing and investing in businesses.
She has analyzed U.S finances as she might do for a large corporation. Busines Insider talks about her report A Summary of America’s Financial Statements. My post uses mostly Meeker’s figures and gives links to her graphs of US finances.
Family Budget
Feb 2011 – EasyOpinions
That’s a good analogy. Last year, Mark Perry and I tried to draw a similar analogy to U.S. households: http://news.investors.com/Article/565013/201103041845/Good-Neighbor-Sam-Shows-How-US-Debt-Bankrupts-Us.htm
In your analysis, unfunded liabilities are only $82T. That’s because you apparently rely on the 75-year estimates of unfunded liabilities for Medicare/Medicaid/Social Security ($66T) rather than those using an infinite horizon ($114T). Thus, if we swap the correct figures into your calculation, the new unfunded burden ($130T) is about 60% higher than your estimate.
The problem with the 75 year calculations is that even if you fill the 75 year hole, at the end of the period there is still a huge unfunded liability (since during that 75 years you have collected trillions in revenue from future retirees but not yet had to pay out any of their SS or Medicare benefits). The infinite horizon calculations, in contrast, represent the amounts required to keep these entitlements perpetually solvent.
If that news isn’t bad enough, Laurence Kotlikoff has estimated that ALL the unfunded liabilities facing government, actually amount to $211T. http://www.npr.org/2011/08/06/139027615/a-national-debt-of-14-trillion-try-211-trillion So whether it’s Uncle Sam or an equivalently situated household, they are in “deep doodoo” in how to reconcile promises with actual resources.
To Chris Conover,
Thank you for the attention and additional information. I used the 75 year estimates because that seemed to be the information available. I wanted to calculate to my satisfaction something consistent.
From a practical perspective, if the 75 year predictions are not enough to change current policy, then a meteor strike would not be sufficient.
The figures are so astounding that I feel we are on the US Titanic, and hitting the iceberg is unavoidable. The only question is how to build life rafts out of the dining room tables.
The astounding fact is that Government is leading people to a worse outcome than if the public were left on its own. People are relying on a rosy mirage rather than saving and planning for their best possible life.