NCPA - National Center for Policy Analysis


February 6, 2007

The key feature of President Bush's fiscal year 2008 budget requests is the focus on entitlement spending, says Brian M. Riedl of the Heritage Foundation.


  • Between now and 2050, Social Security, Medicare and Medicaid costs are projected to surge from 8.7 percent of gross domestic product to 19.0 percent of GDP.
  • An equivalently sized tax increase today -- raising taxes by 10.3 percent of GDP -- would amount to $13,457 per household.
  • If lawmakers instead tried to reduce spending elsewhere in the budget, they would have to eliminate every other program, and that sill would not be enough to offset the entitlements' costs.

The President's budget would introduce income-adjusted drug benefit premiums for seniors and end the indexing of income levels in Medicare Parts B and D that trigger a reduction of subsidies.  Additionally, President Bush has proposed altering the "market basket" of payments for physicians and hospitals.  Revising payment formulas means that payments would better reflect the cost and value of service, says Riedl.

The long-term implications of these proposals are huge and comprise the single most important element of the budget proposals.  If allowed to work:

  • The reforms would reduce the "present value" of Medicare's 75-year unfunded liabilities by over $8 trillion -- $6 trillion in market based savings and $2.4 trillion  from Part B and Part D premiums.
  • These savings mean that the long-term Medicare tab being passed to future generations would be cut by one fourth.

Congress should answer the President's call to rein in the entitlements' looming costs, says Riedl, which otherwise pose such a great burden to future generations. 

Source: Brian M. Riedl, "Bush Budget Reins In Entitlement Costs," Web Memo No. 1341, Heritage Foundation, February 5, 2007.


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