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The Ticking Bomb

red states rule

Senior Member
May 30, 2006
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Instead of wasting time on political investagations - the Dems should look at this


The Medicare fiscal time-bomb

The present value of the unfunded obligations for Medicare over the next 75 years totals $33.9 trillion, according to the 2007 Medicare trustees' report. Over the infinite horizon, Medicare's present-value unfunded obligation totals $74.3 trillion. These totals represent the difference between projected benefits, on the one hand, and the sum of the 2.9 percent payroll tax for Medicare Part A (hospital insurance) and the premium payments by beneficiaries in Medicare Part B (outpatient services) and Part D (prescription drugs), on the other. In order to meet current-law Medicare commitments, $33.9 trillion (over 75 years) and $74.3 trillion (over the infinite horizon) represent the present values of the financing that must come from one of four sources (or a combination): (1) general tax revenues; (2) increased borrowings; (3) lower government spending elsewhere; (4) Medicare reforms that reduce the unfunded obligations.

In his June 21, 2007, statement before the Senate Budget Committee, CBO Director Peter Orszag delivered the bottom line: "[T]he rate at which health care costs grow relative to income is the most important determination of the long-term fiscal balance." Indeed, if the rise in health-care costs could miraculously be instantly limited to the rise in nominal per capita income, the CBO projected in December 2005 that the Medicare-Medicaid share of GDP would increase to only about 7 percent of GDP in 2050 (compared to 4.2 percent in 2005).

Mr. Orszag has outlined the changes in tax policy that would be needed if revenues from individual and corporate income taxes were used to bridge the fiscal gap caused by health-care costs rising by 1 percentage point and 2.5 points faster than per capita GDP in the long run. In the 1-percentage-point scenario, "individual income tax rates would have to rise by at least 70 percent to finance the increase in spending" on Medicare and Medicaid. The middle-income tax rate of 25 percent would rise to 43 percent; and the top individual and corporate rates would both increase from 35 percent to 60 percent.

In the 2.5-percentage-point scenario, Mr. Orszag estimated the lowest tax bracket would increase from 10 percent today to 26 percent; the 25-percent bracket would jump to 66 percent; and the top individual and corporate tax rates would soar from 35 percent today to 92 percent. As he noted, such tax rates "would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion."


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