Global Aging 2011: In The U.S., Going GrayWill Likely Cost Even More Green, Now
As the baby boomers start to reach retirement age, the percentage of the U.S. (AAA/Negative/A-1+) populationeligible for government support will begin to mount. Babies born in 1946 turn 65 this year and will become eligiblefor Medicare. They will also be entitled to start collecting full Social Security retirement benefits next year, under thecurrent system. The U.S. government, however, is not currently collecting enough money to pay its Medicare, SocialSecurity, and other long-term bills.The issue isn't unique to the U.S.—virtually all the major industrial societies will have to deal with it sooner or later(see "Global Aging 2010: An Irreversible Truth," published Oct. 7, 2010, on RatingsDirect on the Global CreditPortal). This update of our Global Aging 2010 study, part of a global study conducted to analyze the potential costof aging, reflects the effect of the tax agreement reached in December 2010 (December tax agreement) as part of theTax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Act). The December taxagreement extended the 2001 and 2003 tax cuts to the end of calendar 2012 and extended certain otherexpansionary fiscal policies such as enhanced unemployment benefits for long-term unemployed workers.In our view, the challenges facing the U.S. are more severe than those facing many of the other major industrialsocieties considered in our Aging Study because of its rapidly escalating health care costs. However, the U.S.' old-agedependency ratio (the number of people 65 and older divided by the number of those 15 to 64) suggests that it mayhave more flexibility to address the aging problem than most European countries and Japan.So far, though, the U.S. political system has not made material progress toward alleviating the rising cost of payingage-related benefits in our estimation. And recent dynamics in Washington suggest to us that agreeing on policychanges to deal with such costs may take some time.
Looming U.S. Fiscal Bill Is Growing As The Population Gets Older
The cost burden of an aging population is set to become much larger in the absence of policy adjustments. Asdescribed below, our hypothetical Base Case Scenario (involving no fiscal policy change) in our update to ourGlobal Aging 2010 study for the U.S. suggests that, under current policies (i.e., tax rates and entitlement programs),U.S. net general (total) government debt would reach almost 600% of GDP by 2050, up from 75% this year. This isa hypothetical result, the product of a simulation based on unchanged policy—not a forecast (see "Global Aging2010: An Irreversible Truth – Methodological And Data Supplement," published Oct. 7, 2010). Nevertheless, webelieve these results are suggestive of what likely lies ahead in the absence of any fiscal policy changes.Four years ago, our hypothetical analysis projected that, under a similar absence of any fiscal policy adjustments, theU.S. 2050 net general government debt would likely be significantly lower at about 240% of GDP. The increasebetween that projection and our projection in our Global Aging 2010 study was primarily a result of the 2009stimulus package and the recession's shrinking of government revenue.In our Global Aging 2010 study, our hypothetical analysis projected, again absent fiscal policy adjustments, that2050 net general government debt would likely also be significantly lower, at a little more than 400% of GDP. Theincrease since that projection is primarily due to the effect on the general government budgetary trajectory of the
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June 21, 2011
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