Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at thinking, intelligent individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

25 March 2010

Medicare and Social Security Liabilities Prior to ObamaCare

Let us review the status of the Medicare and Social Security liability situation in 2009 according to the Social Security and Medicare Trustee Reports.  Their combined unfunded liabilities are $107 trillion!  To this, we are now going to add the liabilities of ObamaCare.  It is also important to note that the Congressional Budget Office was not allowed to calculate the cost of ObamaCare borne directly by the public, which it had done for ClintonCare.  For ClintonCare, 60% of the added cost was to be borne by the private sector, while only 40% was borne by the government, which of course taxes the private sector for that amount.  This is at least likely to be roughly true for ObamaCare.  So, the real price of ObamaCare will really be about 2.5 times the price admitted by the CBO numbers.  In the end, all of these costs will be borne by the private sector, even as the private sector staggers under the crushing load of previous commitments to Medicare and Social Security.

Pamela Villarreal, a senior policy analyst of the National Center for Policy Analysis, prepared an excellent and brief summary of the Medicare and Social Security future burdens in 2009.  Medicare and Medicaid spending has grown at an average rate of 2.5% faster than GDP since 1970.  So, they are taking more and more of our productive output year after year after year.  This retards GDP growth considerably.  Now, ObamaCare has just added greatly to the cost of Medicaid by putting at least 15,000,000 more people on that program.  But, we will ignore that sudden spurt in growth and just assume these programs will "plod" along with a growth rate in excess of GDP by 2.5%.  The consequences:
  • Social Security, Medicare, and Medicaid would have consumed almost half of the federal budget by 2050, just as today's recent college graduates are nearing retirement.  Remember that much of the cost of Medicaid is passed on to the states, which are already staggering on the brink of bankruptcy in many cases under its burden.
  • By 2082, Medicare alone will devour almost the entire federal budget.  Of course this is of no concern to most people now, since they will be dead by then.  But, today's children will be living in those dire times, unless the medical system is so deteriorated by then that life expectancy has shortened to that of the old Soviet Union or of Russia.
Let us consider the popular fiction that tax rates can be increased and people do not change their behavior.  Politicians who support tax increases like to make such projections to calculate the increase in tax revenues.  Of course, tax increases actually usually mean lower tax revenues over time, given the high rates we already start at now.  So, what tax rates are now needed to maintain all of the programs of 2009 in the federal budget at their current levels of spending under a balanced budget under the fiction that everyone will work as hard as now?
  • The lowest marginal income tax rate of 10% goes to 26%.
  • The 25% rate goes to 66%.
  • The highest rate of 35% in 2009, which Obama now wants raised, goes to 92%.
  • The corporate tax rate of 35% goes to 92%.
It would seem there soon will not be any wealthy people to shift the tax burden to for long. Imagine the entire middle class paying 66% of income to taxes!  There surely will not be a middle class for long either at these tax rates.  This was our future before ObamaCare made matters worse!

Let us look at an article from the Washington Post last year by Amy Goldstein on the financial problems of these programs.  She notes that the financial status of both Medicare and Social Security deteriorated at an accelerated rate in 2009.  This would largely be due to the recession and the shrinking payroll tax take that resulted as people lost jobs, went to shorter hours, and took pay cuts.  Of the two, Medicare is in the worse shape.  By 2017, Medicare will not be able to pay all of its hospital bills, which is two years earlier than was projected in the 2008 Trustee Report.  Social Security will be unable to pay retirees full benefits by 2037, which is 4 years earlier than was projected in the 2008 report.  That, I caution you, assumes the government honors the IOUs it has given the Social Security program for previous taxes it used for the general budget.  The situation has further deteriorated since the 2009 report was issued on 12 May 2009.  The part of the Social Security program for disabled Americans will run out of funds in 2020.  That report, however, predicted that the Social Security tax fund will begin to spend more money in 2016 than it takes in through the Social Security payroll tax each year.  As I recently noted, the recession has caused this milestone to be reached this year!

At that time, before the problems continued to become worse as this government-caused recession has dragged on and on, the Social Security problem, provided you consider the IOUs to be good and without problems, could be solved by increasing the payroll tax from 12.4% to 14.4% or by reducing benefits by 13%.  I believe increasing the tax rate will only lead to a compounded reduction of growth in the economy and is a bad idea.  The proper thing to do is to raise the retirement age enough to greatly reduce the costs.  People have been living longer and they are certainly more healthy at age 65 or age 70 than they used to be.  They can work longer.  Since they would then be working longer, they can continue to pay for their own health care costs longer also.  This is clearly the right and moral way to solve the financial crises of these programs.  Of course, I would also encourage programs to allow people to save and invest more, such as a huge reduction in government spending for many purposes, so people will have more take-home pay to save and invest.

Increasing taxes is not the answer.  We must become more hard-nosed and cut the many unconstitutional government programs so people can do a much better job of managing their own lives.  Going on as we are is not a realistic option.  It is the option chosen by the Obama administration, however.  Well, not really, since the Obama administration thought it would be better to make the situation much worse yet and has given us ObamaCare as one of many ways to make it worse.  The young Americans who still like Obama and his socialist programs need to consider very carefully whether they really want the future implied here of incredibly burdensome taxes.  It is time for you young people to focus on trying to live rewarding personal lives in the real world.  But, if you want to continue with your fervor for socialist programs, you need to do a few things:
  • Work incredibly hard for the collectivist good and earn a lot of money to be taxed at very high rates.  Never stop working.  It is your duty to the collective good.
  • Get used to spending little money, because you will have little left after taxes.  Save all of that money for your old age.  No luxuries, no big homes, no fancy cars, clothes from the thrift shop, and squeeze every penny ten times before spending it.  No, don't spend it.  You cannot afford to.
  • Have lots and lots of children to support you in your old age after Medicare and Social Security have gone broke or to keep them hobbling along.  Remember, they are Ponzi schemes and they require lots of young workers to support the older geezers, which you will one day be.  You hope.  If ObamaCare and Medicare do not kill you before what we now think of as our time.  Remember those death panels, they are a-coming, unless retirement and Medicare ages are greatly increased.  As I keep reminding you, Supply and Demand will not be denied.  It is the Grim Reaper of Life.
  • Teach your children that they are slaves to your future need as an old geezer.  You must indoctrinate them really, really thoroughly to work like demons and to want nothing from life, but to support you in your old age.
Darn, I missed John Stossel's program again on Fox Business News.  He was going to talk about how the needs of the old require the young to give them their all.  I missed his 8:00 PM show and the re-run at 11:00 PM.  I hope you did not miss his show.

I later realized that an important clarification was needed on the solution of the Social Security funding shortfall with a mere 2% increase in the payroll tax and added the above color-coded caveat on 27 March.

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