NATIONAL CENTER FOR POLICY ANALYSIS
16.6 percent payroll tax, one-thirdgreater than today’s rate.
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When Medicare Part A is included,the payroll tax burden will rise to25.7 percent — more than one of every four dollars workers willearn that year.
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If Medicare Part B (physicianservices) and Part D are included,the total Social Security/Medicareburden will climb to 37
percentof payroll by 2054 — one in threedollars of taxable payroll, andtwice the size of today’s payrolltax burden!Thus, more than one-third of thewages workers earn in 2054 will
need to be committed to pay benets
promised under current law. That isbefore any bridges or highways arebuilt and before any teachers’ or po-
lice ofcers’ salaries are paid.
Impact on the Federal Budget.
The combined decits of both pro
-grams now require about 14 percentof general income tax revenues [seeFigure I]. As baby boomers begin toretire, however, that number will soar,
and it will be increasingly difcult for
the government to continue spendingon other activities. In the absence of a tax increase, if the federal govern-ment keeps its promises to seniorsand balances its budget:
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By 2020, in addition to payrolltaxes and premiums, SocialSecurity and Medicare will requiremore than one in four federalincome tax dollars.
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By 2030, about the midpoint of the baby boomer retirement years,
Social Security andMedicare Projections: 2009
Brief Analysis No. 662 by Pamela Villarreal June 11, 2009
The unfunded liability is the difference
between the benefts that have been
promised to current and future retireesand what will be collected in dedi-cated taxes and Medicare premiums.Last year alone, this debt rose by $5trillion. If no other reform is enacted,this funding gap can only be closed infuture years by substantial tax increas-
es, large beneft cuts or both.
Social Security versus Medi-care
. Politicians and the media focus
on Social Security’s nancial health,
but Medicare’s future liabilities arefar more ominous, at more than $89trillion. Medicare’s total unfunded li-
ability is more than ve times larger
than that of Social Security. In fact,the new Medicare prescription drug
benet enacted in 2006 (Part D) alone
adds some $17 trillion to the project-ed Medicare shortfall — an amountgreater than all of Social Security’sunfunded obligations.
Future Payroll Tax Burdens.
Currently, a 12.4 percent payroll taxon wages funds Social Security and a2.9 percent payroll tax funds Medi-care Part A (Hospital Insurance). Butif payroll tax rates rise to meet un-funded obligations:
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When today’s college studentsreach retirement (about 2054),Social Security alone will require a
The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs hasreached nearly $107 trillion in today’s dollars! That is about seven times the size of the U.S. economy and 10 times the sizeof the outstanding national debt.
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