Washington, D.C. – When today's 20-year-olds reach retirement age, their government retirement benefits may consume as much as two out of every three dollars earned by the people still working, according to a new study from the National Center for Policy Analysis. The study is based on the latest projections made by government actuaries for the Social Security and Medicare Trust Funds. It differs from previous studies in finding that the burden of health care for the elderly will be greater than the burden of Social Security.
"Elderly entitlements are the nightmare in our future," said NCPA Senior Scholar Dorman Cordell, co-author of the study. "Even if we get past the hurdle of the baby boom retirees, future tax rates will continue climbing just to pay benefits already provided by current law."
"Women are having fewer children and people are living longer," Cordell said. "As a result, there will be fewer than two workers paying taxes for every retiree drawing benefits by the middle of the next century. The tax burden for every worker will also be higher because of rising health care costs," he said. "Workers of the future will be paying more to support the elderly than today's workers pay to fund all government services."
If Social Security continues to operate with its current pay-as-you-go approach, the study predicts that by the year 2045:
- Workers will have to pay between 17 percent (intermediate forecast) and 22 percent (pessimistic forecast) of their wages to fund Social Security benefits.
- They will have to pay from one-third to one-half of their wages to fund Social Security and Medicare.
- When other government programs for the elderly are included (V.A., Medicaid, etc.) the burden will be between 40 percent and 67 percent.
"Taxes of this magnitude will be almost certainly uncollectable," Cordell said. "Unable to raise needed revenue, the government will have no choice but to cut benefits for future generations of retirees."
"The Social Security and Medicare trust funds can't help because the federal government has already borrowed and spent all the money in them," Cordell said. "In effect, the trust funds are only holding IOUs the government has written to itself."
Required Payroll Tax Needed in the Year 2045
| Optimistic Assumptions |
Pessimistic Assumptions |
|
| Social Security | 17% | 22% |
| Social Security & Medicare Part A |
27% | 42% |
| Social Security & Total Medicare |
33% | 53% |
| Social Security & All Elderly Health Care |
40% | 67% |
For a copy of the study "The Nightmare in Our Future: Elderly Entitlements," contact the NCPA or visit our Website at http://www.ncpathinktank.org/pub/st212.