Elderly Entitlements Forecast for 2050
April 22, 2003
Social Security and Medicare will consume an ever-increasing portion of workers' incomes as the government seeks to keep its promises to future retirees, according to the 2003 annual reports for Social Security and Medicare.
Social Security and Medicare Part A (Hospital Insurance) are funded by a 15.3 percent payroll tax. Currently, the two programs together consume only 13.4 percent of taxable payroll, so they run a small surplus each year. However, according to the Trustees' "intermediate" forecast [see Figure I]:
- When today's college students reach retirement age in 2050, workers will face a payroll tax rate of 17.3 percent just to pay Social Security benefits -- a 40 percent increase.
- When Medicare Part A is included, the payroll tax burden will have to rise to 24.4 percent -- almost a fourth of all the wages workers will earn that year.
Medicare Part B (Supplemental Medical Insurance) and other government health programs are paid from general revenues. However, they can also be expressed as a percentage of taxable payroll:
- Adding the government's share of Medicare Part B, the burden on workers will climb to 29.2 percent by 2050.
- Adding other elderly health care expenses, such as Medicaid and veterans' benefits, the total burden will reach 33.6 percent by midcentury.
To cover these increasing costs, the federal government could dip into general income tax revenues. By 2030, about the midpoint of the baby boomer retirement years, the two programs will need about 36.5 percent of all federal income taxes to pay full benefits.
By 2050, Social Security and Medicare will require more than half of federal income tax revenue -- 54.2 percent -- in addition to payroll taxes.
Source: Matt Moore (NCPA policy analyst), "Social Security & Medicare Forecast: 2003," Brief Analysis No. 436, April 22, 2003, National Center for Policy Analysis.
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