The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.
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Transcript of The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.
![Page 1: The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.](https://reader030.fdocuments.us/reader030/viewer/2022032612/56649ed85503460f94be691d/html5/thumbnails/1.jpg)
The Budget and Entitlements:
Time to Take Action
David JohnThe Heritage Foundation
![Page 2: The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.](https://reader030.fdocuments.us/reader030/viewer/2022032612/56649ed85503460f94be691d/html5/thumbnails/2.jpg)
Federal spending will more than double, driven by Medicare, Medicaid and Social
Secuirty
Medicare
Medicaid
Social Security
Other
Net Interest
45-Year Historical Level of Tax Revenue
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1975 1985 1995 2005 2015 2025 2035 2045
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Total Federal Spending and Tax Revenue as a Percentage of GDP
Defense
Source: Calculations based on Congressional Budget Office (CBO) and Medicare and Social Security Trustees Data (discretionary spending held constant).
![Page 3: The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.](https://reader030.fdocuments.us/reader030/viewer/2022032612/56649ed85503460f94be691d/html5/thumbnails/3.jpg)
The “Big Three” Entitlements Will Grow Dramatically As Nation Ages
Medicare2.7%
Medicare3.5%
Medicare4.7%
Medicare6.5%
Medicare8.0%
Medicare9.0%
Medicaid1.7%
Medicaid2.3%
Medicaid2.8%
Medicaid3.4%
Medicaid4.0%
Social Security4.4%
Social Security4.5%
Social Security5.5%
Social Security6.6%
Social Security6.9%
Social Security6.9%
Medicaid1.5%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
2005 2010 2020 2030 2040 2050
Spending on Three Entitlements as a Percentage of GDP
Source: Spending and Revenues from CBO Long-Term Budget Outlook, December 2005 (Scenario 2 Data), 2006 Social Security and Medicare Trustees Report.
Total = 9.7%
Total = 18.2%
Total = 15.9%
Total =12.5%
Total = 19.9%
Total = 8.6%
![Page 4: The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.](https://reader030.fdocuments.us/reader030/viewer/2022032612/56649ed85503460f94be691d/html5/thumbnails/4.jpg)
Absent action under current law deficits not a problem soon – but then skyrocket to
unprecedented levelsFederal Deficit as a Percentage of GDP
Federal Deficit
45-YearHistorical Average
-5%
0%
5%
10%
15%
20%
25%
30%
35%
1962 1972 1982 1992 2002 2012 2022 2032 2042
Source: Calculations based on Congressional Budget Office (CBO) and Medicare and Social Security Trustees Data (discretionary spending held constant).
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Entitlements will crowd out everything else and collide with historical long-term level of
taxes
Medicare
Medicaid
Social Security
Historical Level of Tax Revenues
0%
5%
10%
15%
20%
25%
1965 1975 1985 1995 2005 2015 2025 2035 2045
0%
5%
10%
15%
20%
25%
Source: Spending and Revenues from CBO Long-Term Budget Outlook, December 2005 (Scenario 2 Data), 2006 Social Security and Medicare Trustees Report.
Three Major Entitlements and Tax Revenues as a Percentage of GDP
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Medicare
Medicaid
Social Security
Other
Net Interest
45-Year Historical Level of Tax Revenue
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Total Federal Spending and Tax Revenue as a Percentage of GDP
Defense
Source: Calculations based on Congressional Budget Office (CBO) and Medicare and Social Security Trustees Data (discretionary spending held constant).
Even eliminating defense will not solve the problem
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Bush 2008 Medicare proposal has significant savings—trimming 2014 long-term costs
Total Federal Spending and Tax Revenues as a Percentage of GDP
MedicareMedicaid
Social Security
Defense
Other
Interest Tax Revenue
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 20500%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Defense
Source: Calculations based on Congressional Budget Office (CBO) and Medicare and Social Security Trustees Data (discretionary spending held constant).
![Page 8: The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.](https://reader030.fdocuments.us/reader030/viewer/2022032612/56649ed85503460f94be691d/html5/thumbnails/8.jpg)
2008 House Budget: No Entitlement Savings, but huge tax increases
Total Federal Spending and Tax Revenues as a Percentage of GDP
MedicareMedicaid
Social Security
Defense
Other
Interest
Tax Revenue
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 20500%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Defense
Source: Calculations based on Congressional Budget Office (CBO) and Medicare and Social Security Trustees Data (discretionary spending held constant).
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Projected Federal Tax Revenue for Three Tax Policy Scenarios
as a Percentage of GDP
But under current law taxes will rise sharply thanks to pre-Bush laws, despite Bush tax
changes
Current Law: Bush Tax Cuts Expire
With Bush Tax Cuts Extended
With Bush Tax Cuts Extended and AMT Fix
16%
18%
20%
22%
24%
2005 2015 2025 2035 2045
Projected Federal Tax Revenue for Three Tax Policy Scenarios as a Percentage of GDP (2005-2050)
Source: CBO Long-Term Budget Outlook, December 2005 and Budget and Economic Outlook, January 2007.
Average Tax Burden, 1966-2006 = 18.2%
Highest Tax Burden in U.S. History = 20.5%
![Page 10: The Budget and Entitlements: Time to Take Action David John The Heritage Foundation.](https://reader030.fdocuments.us/reader030/viewer/2022032612/56649ed85503460f94be691d/html5/thumbnails/10.jpg)
Medicare
Medicaid
Social Security
Other
Net Interest
45-Year Historical Level of Tax Revenue
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Total Federal Spending and Tax Revenue as a Percentage of GDP
Defense
Source: Calculations based on Congressional Budget Office (CBO) and Medicare and Social Security Trustees Data (discretionary spending held constant).
Raising revenue to balance the budget would lead to European level taxes
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But European-level taxes = European-level growth
3.3%
2.7%
2.1%
1.3%1.4%
2.2%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
U.S. Sweden France Italy Germany EU-15
Real GDP Growth Over Ten-years (1995-2005)
Source: OECD in Figures, 2006-2007 Edition.
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Slow European-style growth = Lower incomes in US
$41,900
$32,700
$30,200
$28,500$29,800 $29,900
$33,264
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
U.S. Sweden France Italy Germany EU-15 Alabama
Source: Country GDP data from OECD in Figures, 2006-2007 Edition; State GSP data from BEA.
GDP per Capita for 2005 (Using Current PPPs)
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Slow European-style growth = Unemployment
5.1%
7.8%
10.0%
7.8%
11.2%
8.3%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
U.S. Sweden France Italy Germany EU-15
Source: OECD in Figures, 2006-2007 Edition.
Unemployment Rate for 2005
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Conclusion: Take Action on Retirement Entitlements
• Amend the Medicare drug bill• Raise the retirement age• Target Medicare and Social Security to
those with most need• Transform entitlements into 30-year
budgeted programs, balanced against other needs
• Measure impact of policy changes on long-term obligations