- Today, 10k Baby Boomers retire every day, collecting benefits from Social Security and Medicare. That's 3.65M retirees every year and 36.5M retirees every decade until the Baby Boomers die out. That's ~25 years out (or, 2040, for the sake of convenience).
- In 1960, 5 workers funded every retiree's benefits. In 2030, 2 workers will fund every retiree. That's a 60% decrease in the base that funds Social Security and Medicare.
- In 2015, the average couple who retires will have paid $140k into Medicare. They will receive $430k in Medicare benefits. That's a 307% return on investment. Such a deal everyone should have!
Examining those demographics, a Congressional Budget Office (CBO) report predicts a $40T increase in debt over the next 20 years. However, the CBO's "alternative" and more realistic forecast predicts a $10T increase in the nation's debt over the next 10 years, followed by $100T in following 20 years.
Remember: A deficit means the amount of tax revenue collected is less than the amount the government is spending. Consider these statistics:
- Tax revenue has averaged 17.3% of GDP for the past 50 years. Over the next 10 years, the CBO expects that figure to be 18%. In other words, tax revenues will remain relatively flat, increasing by 4%.
- Spending has averaged 20% of GDP for the past 50 years. Over the next 30 years, the CBO expects spending to reach 34% of GDP. In other words, govenrment spending will increase by 70%!
In short: Government overspending causes a nation's deficit to increase.
As bad as this CBO forcast is, Senator Rob Portman (OH-R) writes in a Wall Street Journal article that the forecast is unrealistic because of its fundamental assumptions:
- record low interest rates will continue;
- Obamacare price controls will materialize; and,
- the United States will not suffer another recession.
None of those assumption is likely to materialize.
Senator Portman's solution?
Make the Social Security and health care "entitlements" more sustainable by:
- adjusting retirement ages;
- means-testing for benefits; and,
- creating a patient-centered healthcare system that reduces the cost of healthcare.
In other words, let the government keep spending but only less so. However, notice that Senator Portman doesn't mention "at a rate of 4%" which is the projected increase in tax revenue over the next 10 years. No, he can't say that because his constituents don't want to hear that and Senator Portman doesn't want them to vote him out of office.
It's that kind of backwards thinking and lack of leadership courage that will allow government spending to continue eating away at the nation's economy and gradually transform it into Eurozone social-democratic economy.
Running up deficits--national disasters notwithstanding--government (like individual citizens) should not be allowed to spend more than it collects or can pay back over a reasonable amount of time.
Any citizen who is 20 years of age in 2015 will be 45 years of age in 2040. Guess who's going to be paying an effective tax rate of 70% because political leaders--like Senator Portman--today live in fear of their constitutents and political enemies and, thus, aren't willing to rein in government spending today?
Let the discussion begin...
To read Senator Portman's article in the Wall Street Journal, click on the following link:
"Heading Off the Entitlement Meltdown."