As of 2009, the difference between what is owed to recipients of Social Security and Medicare and the amount available to meet the obligations now and into the future is now 7 times larger than the U.S. economy. Medicare’s unfunded liability is currently 5 times greater than that of the Social Security gap. If taxes were to be raised to meet the unfunded liabilities within a generation (by the year 2054) 1 out of every 3 payroll tax dollars would be consumed (in effect doubling the current level of payroll taxes being paid). As Baby Boomers age half of all tax dollars will be spent on Social Security and Medicare within 20 years.
According to the Congressional Budget Office (CBO), if the government were to continue spending at current levels and attempt to achieve a balanced budget a marginal tax rate of 25% would need to be increased to 66% and the highest marginal tax rate of 35% would rise to 92%!! In fact, healthcare spending accounts for about 1/6 of the U.S. economy ($2.5 trillion / 17.5% of U.S. GDP). According to Meredith Rosenthal, a Harvard University professor of health economics and policy, “Health care is the economy,” and fixing it would free up money for other priorities, such as education and industrial innovation.
As the population of seniors explodes over the next twenty years and the pressure on government programs and the healthcare system become gargantuan, people will need to be prepared to find alternative ways to take care of themselves. Alternative forms of funding will become critical as the burden to pay for care will be pushed back on the individual.
To read more about the Social Security and Medicare crisis, click here.
To read more about the impact of healthcare spending on the U.S. economy, click here.