NCPA: Medicare Unsustainable, Even Without Prescription Drugs


Medicare/Social Security Trustee: More Than a Third of Income Tax Revenues to be Required by 2030

DALLAS (May 15, 2003) -- As the baby boom generation begins to retire, the cost of maintaining Medicare and Social Security will begin to soar, according to a new study by the National Center for Policy Analysis (NCPA). Within three decades, the government will have to use 37 percent of all income tax revenues just to pay promised benefits.

"The baby boomers probably won't get everything they've been promised," said Social Security and Medicare Trustee Thomas R. Saving, who co-authored the study. "To keep its promises to the elderly, government will either have to stop doing one-third of everything currently funded by income taxes or increase taxes by one-third by 2030 - about the mid-point of the baby boomer retirement years."

Future benefits promised by Medicare and Social Security are not reported as debts of the federal government. However, they are implied debts if the government is going to keep its promises. The study reports that:

  • The total cost of paying all benefits that have already accrued under Social Security is almost $13 trillion in today's dollars.
  • The total cost of Medicare (Part A and B) benefits already accrued is almost $17 trillion.
  • This implied Social Security and Medicare debt is about ten times the size of the debt held by the public.

The study notes that the financial outlook gets even worse if Congress adds new benefits to the programs without any structural reform.

"A prescription drug benefit, similar to what Republicans proposed last year, would immediately increase the size of government obligations by two-thirds of the current debt held by the public," said NCPA Senior Fellow Andrew Rettenmaier, and co-author of the study. "And what the House Democrats proposed was twice as expensive as the Republican proposal." Saving and Rettenmaier are both affiliated with the Private Enterprise Research Center (PERC) at Texas A&M University.

As the baby boom generation begins to be replaced by a new generation of retirees, elderly entitlements will require an ever increasing share of government revenue. For example:

  • By 2050, when today's college students begin to retire, half of all income tax revenue will be needed to make up the deficits in Social Security and Medicare.
  • By 2070, when today's newborns begin to retire, deficits in the two programs combined will require almost three-fourths of all income tax revenues - leaving only one out of every four dollars of income tax revenues for national defense, education and all other government programs.