It’s time to stop digging

By Dan Juneau

October 05, 2009 at 9:05 am  | Mobile Reader | Pring this storyPrint 

President Obama inherited a lot of problems from previous administrations-as did the previous administrations from their predecessors.

The most effective strategy one can employ when confronting an inherited problem is a commitment not to make the problem worse. As the old adage says, “If you find yourself in a hole, stop digging.” Before charging ahead to create a new health care entitlement program, the political class in Washington should carefully note the cost avalanche heading our way from previously created entitlements.         

Reading annual reports issued by the trustees for the Medicare and Social Security systems is like reading a vivid horror novel alone in a dark room in a raging thunderstorm. The unfunded accrued liability for Medicare is $85 trillion going forward to 2082. That is FIVE TIMES larger than the Social Security system’s unfunded accrued liability. For Medicare to continue to pay its bills during that time period, an additional $36 trillion in general tax revenues-measured in today’s dollars-must be transferred to its various trust funds. By comparison, the huge financial markets’ bailout last year only consumed $1 trillion.

The increase in payroll taxes on American workers that will be needed just to pay for the current level of entitlement spending going forward is truly mind boggling. By 2054, when today’s college students begin retiring, Social Security will claim 16.6 percent of their paychecks; Medicare Part A will take 9.1 percent and Parts B and D will absorb an additional 11.3 percent. That means 37 percent of their paychecks will be confiscated before any state and federal income taxes are deducted.

By 2020, Medicare and Social Security will consume 27 percent of all federal revenues. That amount will climb to 49 percent by 2030 and 74 percent by 2060. When Medicaid is added into the entitlement mix, the future becomes even bleaker. Medicare, Medicaid, and Social Security combined will consume the entire federal budget by 2050 and Medicare alone will devour it all by 2082.

Using tax increases to balance the budget going forward is a chilling prospect. The Congressional Budget Office estimates that the following tax increases would be necessary to pay for the rising costs of existing entitlements:

The lowest marginal rate (10 percent) would have to increase to 25 percent.

The 25 percent rate would have to go to 66 percent.
The highest marginal rate (35 percent) would have to rise to 92 percent.

The top corporate rate (35 percent) would also have to go to 92 percent.

Businesses and individuals will have little if any discretionary income left after taxes in the future if the current level of entitlement spending is maintained by the federal government. The entire economy would collapse if this level of taxation is ever imposed on businesses and individual taxpayers.

In spite of these dire facts, the political class in Washington is in hot pursuit of creating yet another realm of underfunded entitlements that will compound the already dismal fiscal future of our nation. Oh sure, they claim that the new programs will be “paid for” and won’t “add a dime” to the deficit. That was exactly what the politicians claimed when Social Security, Medicaid, and the various Medicare components were created. It wasn’t true then, and it isn’t true now.

It is time for our elected officials in Washington to repair the fiscal damage that has already been inflicted. They should make Social Security, Medicare, and Medicaid completely solvent before creating any new entitlements. In short, they should stop digging the fiscal deficit hole any deeper and start filling it in.




View other articles written By Dan Juneau

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