NCPA - National Center for Policy Analysis


March 22, 2005

The financial problems facing Social Security and Medicare are not in some far off, distant day. They are upon us right now, says Thomas R. Saving, a senior fellow at the National Center for Policy Analysis.

Although Social Security is running a surplus, Medicare is running a deficit. One way to think about this is to realize that Social Security's extra revenues are being used to cover Medicare's shortfalls, and even that is not enough, explains Saving.

This year, for the first time in more than two decades, Social Security and Medicare together will spend more than the payroll taxes they collect and require almost 4 percent of federal income tax revenues. That figure will double in the next five years and double again in the five years after that.

  • By 2010, the federal government will spend 8.6 percent of federal income tax dollars to pay benefits, assuming no increase in taxes.
  • By 2020, after Social Security slips into deficits, elderly entitlements will consume one-in-four income tax dollars.
  • By 2030 they will consume one of every two.

To put that in perspective, in less than 30 years the federal government will have to reduce by half its spending on other programs that are funded by income taxes, or increase income taxes by 50 percent.

As the years roll by, the financial picture will become bleaker. By midcentury, when today's college students retire, we will need three-fourths of all federal income taxes to pay their retirement benefits at current tax rates. Eventually, retirement benefits paid to the elderly will consume the entire federal budget, crowding out every other spending program, says Saving.

Source: Thomas R. Saving, "Answering the Myths about Social Security," Brief Analysis No. 509, National Center for Policy Analysis, March 21, 2005.

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