NCPA - National Center for Policy Analysis

Third-Rail Economics

September 14, 2010

The cost of entitlement programs like Medicare and Social Security is racing ahead at the same time that the federal government is ladling out dollars to fight the recession.  Meanwhile, we are contending with chronically high unemployment, insurmountable debt payments and a crushing tax burden that could kill U.S. competitiveness.  Maybe, just maybe, those entitlements have to be redesigned, says Congressman Paul Ryan.

The Congressional Budget Office (CBO) projects that federal debt will, by 2020, rise to nearly 100 percent of gross domestic product (GDP) -- compared with 62 percent today and 36 percent only three years ago -- if the Bush tax cuts are extended, the alternative minimum tax is indexed for inflation and current spending policies remain in place.  According to the Social Security Board of Trustees, by 2037 the program's trust funds will be depleted, says Forbes.

  • To keep that from happening, Ryan proposes to freeze nondefense discretionary spending -- 15 percent of the budget -- for 10 years and move to means-tested programs to cover retirees and sick people. 
  • Ryan's tax plan would eliminate itemized deductions and set rates at 10 percent for the first $50,000 of income on an individual return and 25 percent for income above that. 
  • He would replace the corporate income tax with an 8.5 percent business consumption tax.

Other proposals by Ryan include:

  • Wiping out ObamaCare and replacing it with a voucher-based system in which adults get a $2,300 refundable tax credit to pay for health care.
  • Similarly, Medicare recipients under age 55 today would, on retirement, get vouchers to buy private insurance.
  • He would also raise the eligibility age for both Social Security and Medicare to 69 and 70, respectively, by the end of this century.

Source:  Brian Wingfield, "Third-Rail Economics," Forbes Magazine, September 13, 2010.

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