In a new paper, the Heritage Foundation’s Brian Riedl has done an excellent job of
presenting the fiscal challenges caused by Social Security, Medicare,
and Medicaid in the coming decades. These core elements of the American
welfare state have tens of trillions of dollars in unfunded liabilities
through 2050. To put it in perspective, the programs add up to 8
percent of gross domestic product now. They’ll total nearly 19 percent
of GDP in 2050 ? roughly what the entire federal budget currently
consumes. Riedl charts a path to reform, but points out that there are
no easy, painless solutions. Relying on tax increases, however, can
certainly be seen as the most painful ?solution?:
Increasing taxes by
10.2 percent of GDP today would come to $1.394 trillion, or $12,072 per
household. It could mean raising income tax rates by at
least 120 percent?and probably more because tax increases slow economic
growth and dampen new revenues?with additional raises thereafter. Funding all of the prom?ised benefits would require raising the 35
percent income tax bracket to at least 77 percent and the 25 percent
tax bracket to at least 55 percent.
