The 2004 Medicare and Social Security Trustees Reports
Friday, June 04, 2004
by Andrew J. Rettenmaier & Thomas R. Saving, Ph.D.
Table of Contents
The Combined Social Security and Medicare Burden
"We need $74 trillion on hand and invested today to avoid benefit cuts or tax increases."
In order to fully understand the burden that currently legislated elderly entitlement programs will place on future taxpayers, we must look at Social Security and Medicare finances in combination. As Table III shows, funding the current generation's benefits will require additional transfers with a present value of $41.9 trillion. The present value of additional funding requirements for future generations is another $31.7 trillion. Together, current and future generations will require additional funding of $73.8 trillion. Even if we treat the Trust Funds as real funding sources rather than simply commitments to provide funding, the programs are still short $72 trillion.
Table IV decomposes the funding requirements by time period. The present value of the Social Security's additional funding needs over the next 75 years is $5.2 trillion and Medicare's is $28 trillion, for a $33.2 trillion total.
In Table V we present the total dollar amounts relative to the present values of GDP and federal income taxes for both the 75-year and the infinite horizon:
- Over the next 75 years, an additional 5.7 percent of GDP will be needed to pay scheduled benefits - an amount equal to 52.4 percent of projected federal income tax receipts.
- For long run solvency, an additional 8.2 percent of GDP will be needed - or 75.2 percent of projected federal income tax receipts.
"The additional revenue required equals more than three-fourths of future income tax revenues."
If projected Social Security and Medicare shortfalls are to be funded, Congress must pass legislation, binding on all future Congresses, that sets aside 75.2 percent of federal income tax receipts in every year from now to eternity! Importantly, the funds set aside cannot be spent on other programs, as is currently done with such surpluses. Instead the funds must be set aside and invested in real assets. Put another way, in order to solve the funding problems we have discussed in this paper, current federal expenditures must be reduced immediately and permanently by more than 50 percent.