Again, with feeling: We’re in trouble
Essential reading. Here’s an excerpt of a letter from the Congressional Budget Office to Rep. Paul Ryan, R-WI, ranking member of the House Budget Committee:
Under current law, rising costs for health care and the aging of the population will cause federal spending on Medicare, Medicaid, and Social Security to rise substantially as a share of the economy.
In response to your letter of May 15, 2008, the Congressional Budget Office (CBO) has prepared the attached analysis of the potential economic effects of … using higher income tax rates alone to finance the increases in spending …
With no economic feedbacks taken into account and under an assumption that raising marginal tax rates was the only mechanism used to balance the budget, tax rates would have to more than double. The tax rate for the lowest tax bracket would have to be increased from 10 percent to 25 percent; the tax rate on incomes in the current 25 percent bracket would have to be increased to 63 percent; and the tax rate of the highest bracket would have to be raised from 35 percent to 88 percent. The top corporate income tax rate would also increase from 35 percent to 88 percent.
Such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion.
And these tax increases are separate from the tax increases that’ll be needed to cover the massive unfunded liabilities in state and local pension funds. Add it all up and we’re in deep hock:
The federal government’s long-term financial obligations grew by $2.5 trillion last year, a reflection of the mushrooming cost of Medicare and Social Security benefits as more baby boomers reach retirement.
That’s double the red ink of a year earlier.
Taxpayers are on the hook for a record $57.3 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs, a USA TODAY analysis found. That’s nearly $500,000 per household.
When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages.
In 2017, only nine years from now, the United States will have to hit the reset button.