September 22, 2004
The latest reports from the Trustees of Social Security and Medicare calculate the present values of the cash flow deficits for both programs and the numbers are staggering, says Thomas R. Saving, a senior fellow with the National Center for Policy Analysis.
- Social Security's funding gap for the next 75 years stands at $5.2 trillion.
- Medicare's unfunded costs come to $28 trillion, including $8.1 trillion due to the new prescription drug benefit.
- The combined $33.2 trillion shortfall is about three times the current size of our economy.
Bleak as this picture is, over a longer horizon the situation is worse. Consider people retiring 76 years from now. A 75-year calculation counts all of the payroll taxes these people will pay but ignores the benefits they expect to receive. To measure what happens after the 75th year and beyond, the trustees now calculate the unfunded obligations over an infinite horizon.
- The Social Security system's long-run cash flow deficit is $11.9 trillion, and the new prescription drug benefit will require an additional $16.6 trillion.
- Add in Medicare Part A (hospital insurance, completely paid by taxpayers) and Part B (doctors' insurance, three-fourths funded by taxpayers) and the total Medicare shortfall comes to $61.9 trillion.
- Over and above payroll taxes and premium payments made by the elderly, the unfunded liability in these two programs combined totals more than $73 trillion -- about seven times the size of our economy.
A proposed new entitlement, keeping Medicare Part B premiums from rising no faster than the rate of inflation, would make this burden even worse. Economist Andrew Rettenmaier has calculated that if this policy were to be continued indefinitely, the new unfunded liability would total $6 trillion, more than half the size of Social Security's unfunded liability!
Source: Thomas R. Saving, "How Are We to Pay for All This?" Wall Street Journal, September 22, 2004.
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