Social Security won’t be secure much longer, a new report has found, and Americans just entering the workforce, years away from retirement, stand to lose the most.
For decades, Social Security and Medicare have been considered “pay as you go” programs, with each generation of workers paying payroll taxes to fund the previous generation’s retirement. But within the next decade, 77 million baby boomers will reach retirement age, pushing the costs of sustaining Social Security and Medicare payments to crisis levels.
The new study by Jagadeesh Gokhale, senior economic adviser to the Federal Reserve Bank of Cleveland, and Laurence J. Kotlikoff, Boston University economics professor, predicts that by 2030 – when baby boomers are only halfway through their retirements – the costs of entitlement programs will have doubled. Policy-makers will then have to choose from doubling the payroll tax to more than 30 percent, cutting entitlement benefits in half or borrowing to cover the difference.
If policies remain unchanged for five years, the study predicts future generations will pay 40 percent of their lifetime incomes in taxes. No policy changes for 10 years would mean a 46 percent lifetime tax burden, and 20 years without change would require future generations to surrender an outrageous 63 percent of their incomes to the government.
Gokhale and Kotlikoff are hardly alone in their projections. Since the issue gained prominence with the Bipartisan Commission on Entitlement and Tax Reform’s 1994 report, many studies have sounded a similar alarm.
U.S. Comptroller General David M. Walker told the Senate Budget Committee in February that even devoting all government surpluses to entitlement programs will only delay the inevitable: By 2030, Social Security, Medicare and Medicaid would consume more than three-quarters of the federal budget, and sometime in the 2040s the U.S. government would have no money for anything but these programs.
A year before Walker’s testimony, a Heritage Foundation analysis found even economic growth will not save entitlements, and since Social Security benefits are linked to wages, fast economic growth would ultimately increase the drain.
No wonder Gokhale and Kotlikoff raise the specter of “generation war” as entitlement policy is worked out. A 65-year-old woman, for example, can expect to gain $163,000 more from entitlements than she paid in taxes. However, a 20-year-old woman will pay about $92,000 more than she will receive. A 20-year-old man gets a worse deal: He’ll pay $312,000 more than he will receive from the programs.
The proposals for saving entitlements vary, but one fact stands out clearly: Americans 65 and older are the nation’s most reliable voting bloc, and if their continued push to expand entitlements prevails, these programs’ costs will be with working taxpayers long after their beneficiaries are not.
