WHAT ABOUT THE UNFUNDED LIABILITIES?
October 7, 2008
This past spring, the Social Security Trustees released their annual report on the state of the Social Security and Medicare programs. The report on the state of entitlement programs is rather grim -- the combined unfunded liabilities of both programs are a $101 trillion, says Mike Whalen, policy chairman of the National Center for Policy Analysis.
What does it all mean?
- To pay promised elderly entitlement benefits to our old folks into the future, we must have $101 trillion in the bank today gathering interest.
- This is the amount above and beyond what dedicated payroll taxes and general revenues will cover; in other words, the cost of this unfunded liability amounts to more than $300,000 for every man, woman and child in America.
Many shrug their shoulders at a debt that seems so far into the future. To his credit, U.S. Treasury Secretary Henry Paulson warned shortly after the report's release that without entitlement reforms, "rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity."
However, Pete Stark, California Democrat, of the House Ways and Means Health Subcommittee, remarked: "Reports of Medicare's death have been greatly exaggerated."
Not so, says Whalen:
- Currently Social Security and Medicare Part A are covered by a 15.3 percent payroll tax, half paid by the employee and the other half paid by the employer.
- But according to the Trustees Report, today's payroll taxes percent would have to increase by one-third to meet unfunded obligations of Social Security and Medicare Part A.
- If payroll taxes were increased to include the shortfalls from Part B and the prescription drug program, one-third of workers wages would be committed to pay for promised benefits by 2054.
Moreover, in the absence of any tax increase or entitlement reform, the federal government would have to stop spending money on 1 in 4 services it currently provides by 2020, such as education or infrastructure. The cutbacks would increase to 1 in 2 by 2030, says Whalen.
Source: Mike Whalen, "Forget the bailout. Whither our debt?" Washington Times, October 7, 2008.
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