Tuesday, March 14, 2006

Heritage Foundation

Please take a few minutes and read this "Web memo" from the Heritage Foundation. The Heritage is a CONSERVATIVE think tank.

This memo does a good job of discussing out of control Republican spending in Congress.


William Larsen said...

Brian M. Riedl wrote:

"Federal spending now tops $22,000 per household and is growing each year. The coming Social Security, Medicare, and Medicaid costs from the retirement of the baby boomers will place enormous pressure on the budget and leave lawmakers with a choice: enact massive tax increases, pile up unprecedented federal debt, or rein in federal spending."

In 1984 congress passed a law prohibiting Social Security and Medicare from borrowing money.

(a) The receipts and disbursements of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund and the taxes imposed under sections 1401 and 3101 of the Internal Revenue Code of 1986 shall not be included in the totals of the budget of the United States Government as submitted by the President or of the congressional budget and shall be exempt from any general budget limitation imposed by statute on expenditures and net lending (budget outlays) of the United States Government.

(b) No provision of law enacted after December 12, 1985 (other than a provision of an appropriation Act that appropriated funds authorized under this chapter as in effect on December 12, 1985) may provide for payments from the general fund of the Treasury to any Trust Fund specified in subsection (a) of this section or for payments from any such Trust Fund to the general fund of the Treasury.

In addition federal code

If the Medicare and/or SS trustees "determines at any time that the balance ratio of any such Trust Fund for any calendar year may become less than 20 percent, the Board shall promptly submit to each House of the Congress a report setting forth its recommendations for statutory adjustments affecting the receipts and disbursements of such Trust Fund necessary to maintain the balance ratio of such Trust Fund at not less than 20 percent, with due regard to the economic conditions which created such inadequacy in the balance ratio and the amount of time necessary to alleviate such inadequacy in a prudent manner."

I just received my yearly SS statement informing me they project the trust fund to be exhausted in 2041. Exhausted is less than 20% so where is this prompt report presenting recommendations to fix the problem?

Here it is in a nutshell. Social Security expenditures are now capped by law at 9% of total US Wages (85% subjected to Social Security Tax with a payroll tax of 10.6%). If congress does not do anything, COLA’s will cease about 2035.

Medicare is funded by a 2.9% payroll tax. 25% of funding comes from beneficiaries in the form of premium, deductible and out of pocket expenses and 25% from general revenues. The number of beneficiaries has been doubling about every twenty years. This is faster than wage growth. This means expenses are growing more rapidly than the wage base used to fund Medicare. Currently Medicare expenses are exceeding the 2.9% Medicare payroll tax collected. Medicare has been dipping into its trust fund to pay expenses. Because wages are the braking mechanism for Medicare, the general fund cannot contribute more than 1.4% of wages to Medicare.

Total wages in the US total $5 Trillion. This means the general fund today cannot contribute more than $70 Billion towards Medicare. Even if the number of beneficiaries double to 70 million, the general fund would contribute no more than $72.5 Billion, workers would contribute no more than the current $145 Billion and beneficiaries would contribute $72.5 Billion. The result is Medicare will pay only half what it promised.

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