Forbes calculates 81% Tax Increase required to fund SS and Medicare mandates !

[son of the revolution]

http://www.forbes.com/2009/05/14/tax...-medicare.html





Some excerpts


Most Americans believe that the Social Security trust fund contains a pot of money that is sitting somewhere earning interest to pay their benefits when they retire. On paper this is true; somewhere in a Treasury Department ledger there are $2.4 trillion worth of assets labeled "Social Security trust fund."

The problem is that by law 100% of these "assets" are invested in Treasury securities. Therefore, the trust fund does not have any actual resources with which to pay Social Security benefits. It's as if you wrote an IOU to yourself; no matter how large the IOU is it doesn't increase your net worth.




What really matters is not how much money is in the Social Security trust fund or when it is exhausted, but how much Social Security benefits have been promised and how much total revenue the government will need to pay them.

The answer to this question can be found on page 63 of the trustees report. It says that the payroll tax rate would have to rise 1.9% immediately and permanently to pay all the benefits that have been promised over the next 75 years for Social Security and disability insurance.

But this really understates the problem because there are many people alive today who will be drawing Social Security benefits more than 75 years from now. Economists generally believe that the appropriate way of calculating the program's long-term cost is to do so in perpetuity, adjusted for the rate of interest, something called discounting or present value.

Social Security's actuaries make such a calculation on page 64. It says that Social Security's unfunded liability in perpetuity is $17.5 trillion (treating the trust fund as meaningless). The program would need that much money today in a real trust fund outside the government earning a true return to pay for all the benefits that have been promised over and above future Social Security taxes. In effect, the capital stock of the nation would have to be $17.5 trillion larger than it is right now. Alternatively, the payroll tax rate would have to rise by 4%.

To put it another way, Social Security's unfunded liability equals 1.3% of the gross domestic product. So if we were to fund its deficit with general revenues, income taxes would have to rise by 1.3% of GDP immediately and forever. With the personal income tax raising about 10% of GDP in coming years, according to the Congressional Budget Office, this means that every taxpayer would have to pay 13% more just to make sure that all Social Security benefits currently promised will be paid.




As bad as that is, however, Social Security's problems are trivial compared to Medicare's. Its trustees also issued a report this week. On page 69 we see that just part A of that program, which pays for hospital care, has an unfunded liability of $36.4 trillion in perpetuity. The payroll tax rate would have to rise by 6.5% immediately to cover that shortfall or 2.8% of GDP forever. Thus every taxpayer would face a 28% increase in their income taxes if general revenues were used to pay future Medicare part A benefits that have been promised over and above revenues from the Medicare tax.





The reality, which absolutely no one in either party wishes to face, is that benefits are never going to be cut enough to prevent the necessity of a massive tax increase in the not-too-distant future. Those who think otherwise are either grossly ignorant of the fiscal facts, in denial, or living in a fantasy world.


Bruce Bartlett is a former Treasury Department economist and the author of Reaganomics: Supply-Side Economics in Action and Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. He writes a weekly column for Forbes.

[BSH]

Or, they could cut spending in other parts of the budget... we sure don't need a half a trillion dollars on "defense" spending, or billions of dollars in foreign aid, etc. The best solution is a combination - program cuts in SS & Medicare, tax increases (removing the upper income limit on the tax), and spending cuts elsewhere in the budget.

[GunLawyer001]

This is exactly what I've been telling everyone for years, that there is no "trust fund" if all the money taken in as payroll taxes is either turned around and sent out immediately as SS payments, or is "invested" in T-bills and the government spends the balance on other crap immediately. Every dime is spent by the Feds every year. Not a dime is invested in any income-producing venture like hot dog stands or Kewpie Doll factories or WalMart stock. It's just spent, it's gone.

Whether the government has to use 2012 taxes to pay off the T-bills being redeemed by the SSA in 2012 so that the SSA can pay benefits in 2012, or whether the government just scraps the T-bills and pays the 2012 benefits directly, makes NO DIFFERENCE AT ALL. That means that there's no trust fund in any sense. Like an embezzler who keeps having to shift money from account to account to cover the money he stole, the Feds will have to steal 100% of all future payments by taking the money from current taxpayers.

I fully expect the government to replace SS with some sort of shitty public housing project, just like the old Soviet Union. If the Feds provide your living cubicle (no guns or pets allowed), give you a dining hall pass (Soylent Green, it's made from...), and allow you to use the government clinic on alternate months, then they can justify stopping all SS payments.

[thatJeffguy]

Oh, come on!! Obama's going to lower taxes for 90% of the population, while at the same time spending trillions and trillions of dollars. The problem is that you right-wing extremists just keep "looking into the problem" and using things like "numbers" and "facts" instead of hoping for change!

[TXDMERC73]

thats not what i read in the newspaper.... they said medicare will run out in 2017 and social security funds will be depeleted in 2038 so when you retire there will not be any money there or medicare benefits if you retire 30 years from today....

[BSH]

TXDMERC73, read what GunLawyer wrote again. The day of reckoning is for Social Security is coming up in eight or nine years (I forget exactly). That's when the amount of money coming into Social Security will be LESS than what they are supposed to pay out. That's the only calculation that matters; there is no trust fund. Any alleged "trust fund" money has to be raised in new taxes or deficits.

[Dredly]

Keep in mind... the gov't is the largest single employer in the country... someone has to pay the people that are responsible for spending the rest of the people's money.

[ehidle]

the gov't is the largest single employer in the country...

... and produces precisely nothing...

[GunLawyer001]

... and produces precisely nothing...

That's true, it exists primarily to guide some of the interactions of the citizens. If the national economy was a race car, it would be as though the steering wheel consumed 40% of the total output of the engine. Kind of hard to compete with other cars that way. No wonder we import so much from nations that aren't saddled with that burden.

[knight0334]

Another part of the SS problem is people who never paid into it are receiving checks, and people of paid in X number of dollars have done withdrawn their vested interest.

There should be another fund or service for those types above to draw from. Not our Social Security that us tax payers have vested into. Our SS taxes should go only to those that pay into the system, and payments should stop once you've withdrawn what you've vested and the interests earn upon that amount.