Entitlements

America's Coming Transfer of Wealth

How entitlement spending transfers wealth from the young to the old.

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Does it seem as if some lawmakers have the attention span of a toddler? Several years ago, concerns about the debt and overspending were all the rage. These worries have dissipated almost entirely as deficit levels have gone down from their sky-high summit in 2009. And just like that, lawmakers have gone back to overlooking our long-term fiscal situation and the unsustainable path the nation is on.

Case in point: the latest projections from the Congressional Budget Office. According to the CBO's annual Long-Term Budget Outlook, if current laws were to remain unchanged, government spending as a share of gross domestic product would reach 22.2 percent in fiscal 2025, up from 20.5 percent today. By then, even under a very rosy GDP growth scenario, the debt would amount to 78 percent of the economy. To put this number in perspective, the debt-to-GDP ratio was 35 percent in 2007. In 2040, the debt could reach a whopping 103 percent of GDP. Spending on interest alone would consume 4.3 percent of GDP, a dramatic increase above the current 1.3 percent. Putting that in dollar terms, interest on the debt would jump from $235 billion to over $2.2 trillion. That's a lot of money.

The deterioration comes fully from the explosion of major health care programs, Social Security and escalating interest on debt costs. More precisely, Medicare, Medicaid, Affordable Care Act subsidies, and Social Security are the drivers of our future debt. Spending on these programs alone could reach 11.8 percent of GDP in fiscal 2025 and 14.2 percent of GDP in 2040, up from 10.1 percent today.

Because spending on entitlements will continue to outpace all other spending for years to come, they will consume a large and increasing share of the budget. In layman's terms, it means that the future of our government will be mostly to spend money on older Americans for their retirement and health care. Despite federal revenues slightly increasing during the coming decade, the government could still run cumulative deficits of $7.4 trillion over that 10-year period, according to CBO forecasts.

Of course, all of the policy uncertainty in Washington, not to mention the CBO's required current law projections, will not yield perfectly accurate forecasts. If lawmakers were to make changes to current law—say, repeal the sequester cuts or scheduled tax increases or fail to implement some of the "savings" in the president's health care law—then deficits and debt would be significantly higher than the amounts reported under the current base line.

For example, under the alternative scenario, the CBO projects that debt would reach 86 percent of GDP in fiscal 2025, and spending would be 22.9 percent of GDP. In 2040, debt as a share of GDP would be an unimaginable 156 percent. And of course, the more debt you have the more interest you pay. Interest on the debt would equal 6.3 percent of GDP, or $3.2 trillion.

Now, if you are not freaked out enough, the CBO also looks at the negative impact on the economy of accumulating such levels of debt. In that scenario, higher debt means lower growth, and that increases our debt to 175 percent of GDP.

And who do you think is going to shoulder this lower growth and higher debt? The younger generations will. Without any changes to our enormous entitlement programs, we are about to witness the most massive transfer of wealth from the relatively poor and young to the relatively rich and old in society. It is time for members of Congress to stop acting like toddlers and refocus on changing the path we are on.

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47 responses to “America's Coming Transfer of Wealth

  1. The deterioration comes fully from the explosion of major health care programs, Social Security and escalating interest on debt costs

    PLEASE explain this to Rand Paul. He claims we can cut revenues to roughly what we pay now for Social Security and Medicare … then cut spending to balance the budget in five years.
    Will we see ads of him pushing grandma off a cliff … or of all our military bases being empty or …?

    And his Dad, of course says we can repeal the income tax, replace it with nothing and run the entire government on FICA taxes. So they seem to share the same fixation.

    1. Welcome to Retardation: A Celebration. Now, hopefully, I’m gonna dispel a few myths, a few rumors. First off, the retarded don’t rule the night. They don’t rule it. Nobody does. And they don’t run in packs. And while they may not be as strong as apes, don’t lock eyes with ’em, don’t do it. Puts ’em on edge. They might go into berzerker mode; come at you like a whirling dervish, all fists and elbows. You might be screaming “No, no, no” and all they hear is “Who wants cake?” Let me tell you something: They all do. They all want cake.

      1. WTF
        Welcome to Retardation

        Like the retard just below you.? (AlexInCT|6.25.15 @ 9:32AM)

        They all do. They all want cake.

        Which here means, FREE TAX CUTS!!!

        Liberal and conservative goobers rally around free government benefits!
        Libertarian goobers rally around free tax cuts! (just as crazy, but our tribe)

        What are free tax cuts?
        Two generations of Pauls each claim we can run the entire federal government on FICA taxes alone! (Ron), or roughly the same revenues (Rand)?

        How? Simply cut spending! (headslap). But they never say where, or they lie about how.
        Goobers don’t care, if the liberty hustlers snarl a lot, with lots of anti-gummint slogans.
        The 50-year divide within the libertarian movement: pro-liberty or anti-gummint?
        Pro-liberty talks to taxpayers. voters and families. Anti-gummint speaks ONLY to the choir.
        We don’t need no steenkeeng supporters, says the Purity Police.

        Meanwhile, the libertarian brand is now rejected by even 91% of libertarians (Cato/Zogby Survey) … the movement image is now dominated by extreme socons , which is who brought in all the bullies, as thugs and aggressors demanding total conformity to their agenda.
        Remember McCarthyism?

        1. Rand did list all the things he would have to cut
          in order to increase defense spending. I thought
          that was an excellent exercise and hopefully a
          learning moment for some.

          1. Bill
            Rand did list all the things he would have to cut in order to increase defense pending. I thought that was an excellent exercise and hopefully a learning moment for some.

            That was a while back. This is about his $2 trillion tax cut, just the other day.
            The math is as horrible as his dad’s “repeal the income tax and replace it with nothing” (followed by an astounding lie on how the government would be financed.

    2. Why would you not be in favor of shutting military bases?

      1. Not a Libertarian|6.25.15 @ 10:06AM|#
        Why would you not be in favor of shutting military bases?

        Why would you ask??? Sorry if I was unclear.
        Why do you believe the entire federal government can be run on the current spending levels of Medicare and Social Security alone? Closing down our ENTIRE military is intended to put the “big numbers” into perspective, And dismantling the entire military is only about 1/3 of the spending cuts promised by Rand Paul. (And his wacky dad)

        You say you’re not a libertarian, so watch closely. The anti-gummint wing has multiple orgasms when some liberty hustler says we can cut taxes by roughly 67% … simply cut spending!!!

        They’re about as gullible as Birthers and New Deal progressives. True Believers.

        Back to your specific question. Why do you believe it’s politically possible to
        1) Shut down our entire military
        2) To win the GOP nomination! (I did say goobers, eh?)
        3) And then the Presidency?

        Because if we simply BELIEVE (and click our heals), it can happen.
        If not, anyone who doubts it is in league with the statists, or some such nonsense, according to the Purity Police who impose conformity through aggression.

    3. I don’t think you’ve thought this through. You do understand the difference between tax _rates_ and tax _revenues_, right? Please tell me you understand that it is possible for a flat tax to reduce nominal tax rates, eliminate deductions and be revenue neutral … right? You seem to suggest, prima facie, that revenues would be drastically reduced under Rand Paul’s plan, but that assertion requires doing the arithmetic which it seems you have not done.

      1. alcarruth
        I don’t think you’ve thought this through.

        Read it again.

        the difference between tax _rates_ and tax _revenues_, right?

        Of course, but totally irrelevant here

        you understand that it is possible for a flat tax to reduce nominal tax rates, eliminate deductions and be revenue neutral … right?

        Nope. Mathematically impossible.
        1) The rich subsidize 38% of the entire share of income taxes for the core middle class ($40-100k).
        2) That’s just on reported income, ignores tax exempt income also targeted to the middle class. Eliminate those and the subsidy is almost 60%
        3) Deductions and exemptions, are both highly targeted at middle-class voters.

        On reported income alone, that middle class wouild pay a 61% tax increase, just to pay its own way. Thus any flat tax, on income or sales, will necessarily create a massive middle class tax increase., OR massive revenue loss.

        You seem to suggest, prima facie, that revenues would be drastically reduced under Rand Paul’s plan, but that assertion requires doing the arithmetic which it seems you have not done.

        Read it again please.
        HE says the tax cuts would total $2 trillion, which is bat-shit crazy, for reasons originally stated. And flat tax or not is irrelevant.
        Google (“Rand Paul” “$2 trillion tax cut”) and see over 800,000 entries.

  2. Progressive are hell bent on turning this country into Greece.

    1. No more so than Republicans under Bush.

  3. The national debt is already over 100% of GDP. The problem is far worse than portrayed.

    1. At this point, the end result is baked in. Many other developed countries are in the same boat and year after year, the debt grows faster than the economy. Anything short of a global game changer in technology, and a lot of countries are heading for tragedy.

      1. If by technology you mean something than evaporated 53% of the population then you may be right.

        Otherwise technology is incapable of overcoming systemic corruption.

    2. It doesn’t count if we owe it to ourselves!

      1. NotAnotherSkippy
        It doesn’t count if we owe it to ourselves!

        FINALLY a note of sanity. It’s no different than changing money from one pocket (or purse) to another!

        1. “FINALLY a note of sanity. It’s no different than changing money from one pocket (or purse) to another!”

          yeah, a pocket in somebody else’s pants!

          1. I had that and deleted it, just so you could finish the 3-step joke!

            We don’t do near enough narratives, in simple English,
            Unfunded liabilities are the larger threat, over $100 trillion, and we can’t inflate our way out of those. Inflation increases the entitlement payouts.

  4. I made a mistake in telling my grandfather that these programs take from people my age to prop up (literally and figuratively) the elderly after he lectured me on how kids my age aren’t as responsible and self-sufficient as the “greatest generation.”

    He didn’t have a moment of self-awareness or hypocrisy or irony after I made that point. He just looked irritated and mildly offended when he said “but I need it…”

    1. You voted for hope and now you’re left with change.

      1. I am totally using that.

    2. He just looked irritated and mildly offended when he said “but I need it…”

      How old is your granddad? I run an email group for my high school classmates, class of 1960, in our early 70s. I don’t know a single one of them who denies our entitlement crisis, including some reasonably far left liberals. “I need it” defines a problem that the political class has no solutions for — which is why nothing fucking happens.

      Your granddad probably assumed you wanted to kick the props out from under him, which is behind virtually every “solution” (SS). Based on the values he grew up with, it’s difficult to believe he has no concern for his grandkids. My own mates phrase it as their “legacy” — which could must be jargon in our group.

      In other words, pointing to the generational disparity does nothing to address it — .but effectively raises money from the tribe.

  5. Social Security and Medicare are already transfer programs. You take money from someone and give it to someone else, which is why age demographics can screw it all up. Don’t expect people to realize those payroll taxes aren’t actually being invested like a personal account though.

    1. Don’t expect people to realize those payroll taxes aren’t actually being invested like a personal account though.

      A fairly large percentage of millennials believe there will be no social security or medicare for them. And they’re less likely say crazy things like “I paid into that all my life..”

      Free marketers have been warning about that for over 50 years. I wrote college a paper on it in 1960 or 61. And it was hardly trailblazing in an economics class!

  6. Spending on interest alone would consume 4.3 percent of GDP, a dramatic increase above the current 1.3 percent.

    I’m guessing this assumes yields on Treasurys remain historically low. That’s really not a given. The recent illiquidity in the bond markets and weird gyrations make even basic predictions difficult. Bond markets appear unstable – not a good thing for long term projections. The CBO assumptions about GDP are laughable also.

    Really, the only possibility of a return to any kind of fiscal or monetary restraint is another crisis forcing it on policy makers.

    1. The fed will take care of that.

    2. Lady Dalrymple

      (applause)
      It’s not just interest rates returning to historical levels. With such low interest rates, do pension funds have their traditional percentage of assets in bonds and interest-bearing investments? When interest rates return to normal, if ever, and all those trillions leave the stock market, we will likely get a market crash as high as what Reagan inherited.

      And we have Both Bush and Obama to thank.

  7. “And who do you think is going to shoulder this lower growth and higher debt? The younger generations will. Without any changes to our enormous entitlement programs, we are about to witness the most massive transfer of wealth from the relatively poor and young to the relatively rich and old in society. It is time for members of Congress to stop acting like toddlers and refocus on changing the path we are on.”

    As most in congress are old and rich, what’s their motivation to change it? They got theirs AND managed to set up a taxpayer funded annuity. In addition, they now have the ultimate in control with all the levers needed to steer us to the promised land. Of course, just because it’s promised doesn’t mean it’s good.

    1. As most in congress are old and rich, what’s their motivation to change it?

      Both parties have been looting the federal treasury to buy middle class votes since … literally … 1986. The so-called “tax reform.”

  8. Acting like toddlers? Na, they’re acting like greedy old men and women.

  9. OT: (mostly) What do you think happens when just about every job is automated? What effect would that have on free markets and capitalism? It sounds like what may play out is that a few industrialists own all the machines that produce everything, and since they only have to hire a small cadre of technicians and engineers to keep things running, there won’t be many jobs left. Even the robots will be manufactured by other robots. If the vast majority of the population is left unemployed, they won’t have any money to spend, so even if someone starts a business of some sort that is safe from automation, they won’t have very many customers. The result would seem to be the owners of the robots living the easy life while the rest of us dig for potatoes with our fingers in some barren field.

    This is just one permutation of the scenario that I was running through in my mind. Do you think it would play out differently? I’m just curious how libertarianism would react to this situation, and what the government should or (probably more importantly) should not do when it happens.

    1. Do you know who the Luddites were?
      Do you know that most of the stock market is owned by pension funds?

      and what the government should or (probably more importantly) should not do when it happens.

      Because t can’t really happen. You’ve got robots manufacturing robots who manufacture end products for … who? If there are no workers, where are the consumers? Retirees? Who pays the FICA taxes?.

      This latest hysteria reminds me of the Social Security hysteria in the early 80s, Much of the stupidity on the right claimed that, if historical trends continue, there will be only two workers to support each retiree.

      Bruce Bartlett, a shit-kicker conservative, ridiculed the answer by saying the economy cannot function with that ratio of workers to retirees. Long before that happened, he said, we’d increase immigration to restore a sound ratio of workers and retirees. Especially funny today.

      No, he wasn’t defending SS/Medicare, he was addressing the hysteria involved in “fixing” it, which indeed led to a massive fuckup “solution.”

      The government pension plan was indeed on the verge of collapse. But despite Nick Gillespie’s typical bullshit, there was no support for replacing it, and not even a proposal. (Cato’s semi-privatization of SS is even crazier)

  10. “Coming transfer of wealth”? Social Security and Medicare have been intergenerational transfers of wealth from the very beginning. At this rate we might have to leave the Eurozone and create our own currency. Oh, wait…

  11. It is only fair that ghe younger generations pay for the profligate spending of the Democrats. After all, they brough America 8 years of Obama and they will probably bring America 8 years of Hillary. As they sow, so shall they reap. In the meanwhile, I am healthy, wealthy, and wiser than they.

    1. Who brought us the equally deadly 8 years of Dubya?

  12. Not to worry. The Krauts will be around to bail us out, right?

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  14. Social Security and Medicare were paid into, for their entire working lives, by all those “old folks” you seem to think are cheating the young out of their money.
    Don’t blame those who have been expecting FEDGOV to live up to their promises if the money has been pissed down the rat hole that is the welfare system/vote-buying scheme, and not used for profit making so that the benefits could be paid without making it into a giant Ponzi scheme.

    1. Social Security and Medicare were paid into, for their entire working lives, by all those “old folks” you seem to think are cheating the young out of their money.

      I’m a gaffer myself (73) and at no time did I ever believe I paid anywhere near my own share.
      I can’t place it in time, when Social Security had given recipients all the FICA taxes (both halves) and imputed interest in only seven years. (69-72)

      Don’t blame those who have been expecting FEDGOV to live up to their promises if the money has been pissed down the rat hole that is the welfare system/vote-buying scheme,

      They (we) were being warned the entire time.

  15. Let’s not forget the government will still be spending a large sum of money in the future on questionable military campaigns. Let’s not sell our government short!

    1. And don’t forget planes that are overbudget and underperforming.

  16. Had the greedy hands of the politicians these past many years been stayed from raiding the Social Security “trust” fund and left it to build as was intended, there would be no looming shortage. (……………………………) (……………………………) (…………………………) (………………………)

    The Fed creates as much money (debt) as it wants to pass around to it’s co-conspirator bankster buddies, off book black budgets, foreign entities and “too big to fail” corporate thieves. In effect stealing future earnings from the rest of us. As for the promise that Social Security was supposed to be, they can just keep on printing up that money. And instead of the writers of articles such as this one, complaining about how much Social Security cost; Perhaps they should direct their outrage at the criminals benefiting from the theft of our blood and sweat by the list of rue criminals I mention above.

    1. Had the greedy hands of the politicians these past many years been stayed from raiding the Social Security “trust” fund and left it to build as was intended

      That was never untended. Where would they put the money?

      The way Canada does it sounds crazy at first, until one considers the alternatives. Government assets, mostly trust funds, go into a government owned bank, which then finances mortgages..
      It’s the safest way to keep the assets away from the general fund. If either party tried anything, the other party would point to the threat to home mortgages. Middle class has a direct stake in the CONTROL of the funds.

  17. As a retired elder, I will often thank workers, retail sales people and various young progressives for their contribution of over $30 K to my better-thatn-their lifestyle. Maybe they will get the point. Eventually helping to kill the entitlement programs keeping them “poor”. But! No ! They will want to get their share of the freebies. Technology doubles every 18 months as does idiotic thinking in our government. Laws on top of laws on top of laws. Am I really still paying a tax for the Spanish American War??

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  19. Social Security is an enormous transfer of wealth from young to old. Many Millennials understand that they will never be able to participate in this entitlement program. Some 60% believe that Social Security will be bankrupt before they receive benefits. It is disturbing that Millennials are forced to support Baby Boomers and “contribute” to a system that obviously will not support them when it is their turn to retire. I believe that every American deserves the chance to opt out of Social Security. If you feel the same way, please stop by http://takebackyoursixpercent.com look around and sign our petition to allow every American the choice to opt out of Social Security.

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