NCPA - National Center for Policy Analysis


June 11, 2009

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars!  That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt, says Pamela Villarreal, a senior policy analyst with the National Center for Policy Analysis.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums.  Last year alone, this debt rose by $5 trillion.  If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both, says Villarreal.

Currently, a 12.4 percent payroll tax on wages funds Social Security and a 2.9 percent payroll tax funds Medicare Part A.  But if payroll tax rates rise to meet unfunded obligations:

  • When today's college students reach retirement (about 2054), Social Security alone will require a 16.6 percent payroll tax, one-third greater than today's rate.
  • When Medicare Part A is included, the payroll tax burden will rise to 25.7 percent -- more than one of every four dollars workers will earn that year.
  • If Medicare Part B (physician services) and Part D are included, the total Social Security/Medicare burden will climb to 37 percent of payroll by 2054 -- one in three dollars of taxable payroll, and twice the size of today's payroll tax burden!

Thus, more than one-third of the wages workers earn in 2054 will need to be committed to pay benefits promised under current law.  That is before any bridges or highways are built and before any teachers' or police officers' salaries are paid.

The Social Security and Medicare deficits are on a course to engulf the entire federal budget.  If our policymakers wait to address these growing debts until they are out of control, the solutions will be drastic and painful, says Villarreal.

Source: Pamela Villarreal, "Social Security and Medicare Projections: 2009," National Center for Policy Analysis, Brief Analysis No. 662, June 11, 2009.

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