Breaking Down the Social Security and Medicare Problems

Bruce Bartlett has done an excellent job of detailing the Social Security and Medicare problems. Here's his conclusion:

In summary, we see that taxpayers are on the hook for Social Security and Medicare by these amounts: Social Security, 1.3% of GDP; Medicare part A, 2.8% of GDP; Medicare part B, 2.8% of GDP; and Medicare part D, 1.2% of GDP. This adds up to 8.1% of GDP. Thus federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax.

It should be noted that the projected point, by the Social Security Board of Trustees, at which tax revenues will fall below program costs comes in 2016 -- one year sooner than the estimate in last year’s report. This means that although the fund does not become exhausted, by Trustee projections, until 2036. In 2016, Social Security stops being a net buyer of Treasury securities and becomes a net liquidator, with smaller and smaller net new quantities purchased leading up to 2016 . Currently, Social Security buys approximately 25% all Treasury securities issued. Who is going to make up for that shortfall, especially since Social Security will not only stop buying, but will be a net liquidator? It's not going to be the other major Treasury security player, the Chinese. They are trying to slow their purchases now. So in addition to the Social Security and Medicare crisis for the elderly, this funding crisis will have a major impact on Treasury funding above the 81% increase in Social Security and Medicare that Bartlett has identified.

That light you see at the end of the tunnel is a train heading toward us, soon you will hear it roar.