Thinking About Tomorrow

If the federal government stopped the Medicare and Social Security programs today ― collecting no more payroll taxes and allowing no more accrual of benefits ― it would still owe up to $52 trillion to those who have already earned these benefits, according to a new study by the National Center for Policy Analysis (NCPA).

Of that amount, $33 trillion is owed in Medicare benefits. To put the numbers in perspective, the size of the entire U.S. economy is $14 trillion.

No one thinks we are going to end these programs. Yet these are the right numbers if we account for federal obligations the way private pensions and state and local governments are required to.

The newly released study, “Thinking About Tomorrow,” by NCPA Senior Fellows Andrew Rettenmaier and Thomas Saving determined that:

•    An estimated $9.5 trillion is owed to current retirees — an amount equal to almost $250,000 per person 65 years of age and older in 2008.
•    Adding the liability owed to those nearing retirement (55 and older) more than doubles the accrued debt to $20.6 trillion.
•    Adding the benefits accrued by younger workers brings the total to as much as $52 trillion. The beneficiaries include all retirees, as well as anyone in the workforce above 22 years of age.

If Medicare and Social Security continue on their current course, the obligations of taxpayers will grow. Last spring, the Social Security/Medicare Trustees reported that if the two programs were to continue indefinitely, the present value of the unfunded obligation is $101.7 trillion, about seven times the size of the U.S. economy.

Currently, the two programs combined are spending more than they are receiving in premiums and dedicated taxes. As a result, the government is drawing on general income tax revenues to cover the cash flow deficit. In the near future, as the baby boomers begin to retire, the magnitude of that transfer will soar:

•    By 2012, one of every ten income tax dollars will be needed to close the funding gap for Social Security and Medicare.
•    By 2020, one of every four income tax dollars will be required.
•    By 2030, almost half of all income tax dollars will be needed.