NCPA - National Center for Policy Analysis


February 2, 2009

America is graying.  In 1960, only 1 in 11 Americans was 65 or older.  Now it's 1 in 7; by 2030, it's expected to be 1 in 5.  This aging could impose crushing costs on society, says columnist Robert J. Samuelson.  Taxes may rise, other government programs -- from national parks to college grants -- may suffer and long-term economic growth may slow; yet, main victims would be today's young, who would pay higher taxes and receive fewer public services.

Already, the three major programs serving the elderly population -- Social Security, Medicare and Medicaid -- account for two fifths of federal spending.  In 2008, that was $1.3 trillion out of total spending of $2.98 trillion.  According to Samuelson:

  • Higher spending on Social Security, Medicare and Medicaid could require massive increases in federal taxes -- about 50 percent from present levels by 2030.
  • Paying for baby boomers' added retirement costs would require the elimination of most defense spending or most other domestic programs.
  • State and local governments face parallel, though lesser, pressures; as their workers retire, spending on pensions and health benefits will swell, intensifying the need either to raise taxes or trim local services.

There is a way to cushion the shock, says Samuelson: make annual contributions sufficient to pay future benefits, says Newsweek.  Studies suggest that state and local government pensions were about 85 percent funded in 2006, with wide variations:

  • Wisconsin was 100 percent funded, Illinois only 60 percent, but the stock-market decline has been devastating.
  • Through October, it reduced state and local government pensions by $1 trillion, or about a third.
  • Another problem is that promised health care benefits are largely unfunded; in 2006, these long-term costs totaled $370 billion.

What looms is a huge transfer of income from younger workers to older retirees, says Samuelson.

Source: Robert J. Samuelson, "Boomers Versus the Rest," Newsweek, January 26, 2009.


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