Fix Entitlement Programs, Then Fix Health Care

Overall, the combined cost of Social Security, Medicare, and Medicaid is projected to rise from 8.4 percent to 18.4 percent of Gross Domestic Product by the year 2050. If reform of these programs does not happen to halt the increasing burden, the costs from these entitlement programs will have to be financed by increasing the tax burden (higher payroll tax, broader payroll tax or some other revenue), dramatically cutting other government programs, or running devastating budget deficits. These are the only option if reform does not happen.

First, let us examine the option of raising taxes. Increasing taxes to make up for the 10 percent gap in the GDP would be economically devastating. According to the Congressional Budget Office, the middle class would be pushed from the 25 percent into a 63 percent income tax bracket, the wealthy into an 88 percent bracket (see the data). To put this in perspective, if a 10 percent of GDP tax were applied today, it would increase the tax burden to each American household by $12,000 annually. Obviously, this is not economically feasible.

The second option, financing these entitlements by cutting other programs to make room for the "big 3", would require that every remaining federal program except defense to be eliminated by the year 2030. And by 2050, defense would have to be eliminated as well. By 2052, 100 percent of the federal revenues would have to go to pay for Social Security, Medicare, and Medicaid. And, Obama wants to pile on the cost of government health care ?? Does this make any sense at all ??



The third option, just running a deficit, is no better. Borrowing an additional 10 percent of GDP annually (equivalent to approximately $1.4 trillion a year in today’s dollars) would drive the national debt to levels far beyond those ever seen in history. This would create a vicious cycle of rising interest rates and debt, resulting ultimately in an economic collapse.

The only realistic option is to reform These entitlement programs!

Why should we worry now about long-term costs? Social Security, Medicare and Medicaid entitlements already consume 42 percent of regular federal spending. More importantly, every year, four million more baby boomers are added to the expenditures. By 2019, all 77 million baby boomers will have turned 55. So if we don't want to seriously impact the boomer retirement (and follow generations), must begin reforming these programs now. Attacking these reforms immediately will reduce their ultimate costs, spread the burden across more people, and give baby boomers more time to adjust their retirement strategies.

Most estimates agree that Social Security benefits will exceed Trust Fund revenues in approximately 2016, the fund will be exhausted in 2037. Medicare benefits exceeded revenues in 2006, fund exhausted in 2018. Without any actual economic assets in these trust funds, the painful tax increases or spending cuts will need to begin before 2016 when the Social Security program falls into deficit.

This is by far the greatest economic challenge of our era. Unless lawmakers promptly reform Social Security, Medicare, and Medicaid, America faces a future of soaring taxes and government spending that will have a dramatic effect on economic performance. Americans will be required to pay onerous taxes, strapped with horrendous debt and future generations will have a significantly lower living standards than Americans enjoy today.

Each generation goes further than the generation preceding it because it stands on the shoulders of that generation. You will have opportunities beyond anything we've ever known.

Ronald Reagan

Are we really going to be the first generation of Americans to cause our children and grandchildren to not have greater opportunities than we did?

We need to reform these programs before it is too late, and before government takes over health care.

Technorati Tags: Health Care Crisis,Health Care,Entitlements,Social Security,Medicare,Social Programs