The Government Accountability Office recently issued a report on the fiscal status of the United States. In it, the GAO said that the unfunded liabilities of the government increased by $2.9 trillion last year.
$1.7 trillion, or 58 percent of that number, came about without any action by either Congress or the president. It accrued as a liability simply because the nation became a year older. How is that possible? Because of our entitlement programs.
Here is an oversimplified explanation of their impact.
In accounting terms, there is an invisible line — a fence, if you will — that runs across our society. On one side of the fence are those who work; on the other, those who are retired. Workers both produce and consume goods and services, and when the level of production is greater than the level of consumption, wealth is created. Retirees only consume, so on their side of the fence, wealth is used up.
In the 1930's, when many retirees were running out of money, we created a program, Social Security, under which wealth was passed over the fence to help them out. The numbers balanced out pretty well because only about half of the workers who paid into the Social Security fund lived until retirement age, when they could start taking out. In the 1960's, Medicare was set up on roughly the same basis.
But things changed. Both birth and death rates fell. On the worker side of the fence, where they were creating wealth, there were fewer workers, percentage wise, because people had smaller families. On the retiree side, where they were consuming wealth, there were more retirees, percentage wise, because people were living longer. Such a trend is obviously unsustainable, and it got worse in 2007 when Baby Boomers started to climb the fence.
How much worse? $1.7 trillion a year worse, and rising, without our doing anything other than becoming a year older. We have to act.
We have seen, in Europe, what will happen if we don't. In Greece, where the wealth transfer from worker to retiree has been going on at a much higher level than here, the average retirement age is around 57, compared to 67 in the U.S. That fact alone explains many of their problems.
I'm not saying that we should cut off any retiree. Social Security and Medicare have been vital lifelines for the retired poor, and their benefits should not be tampered with. However, Social Security and Medicare also pay the retired rich, who live longer than the poor, thus taking out a bigger share even though they don't need the money.
Let's leave retirement benefits on their current track for the single mom who's worked as a waitress all her life, or the day laborer who has worn out his health in construction, but let's freeze Oprah Winfrey's future payments at present levels (adjusted for inflation), which would put them below what current law promises her. I don't think she will mind.
Current workers who are not billionaires like Oprah need to be prepared to see their future payments adjusted as well, with the amount of those adjustments calculated on the basis of where they fall on the line between Oprah and the waitress. Everyone should still get Social Security and Medicare; but at levels tied to their need.
America's massive wealth transfer from young to old should be tempered by the fact that not all of the old are destitute, and workers should stop being asked to pay ever increasing taxes to support ever increasing benefits for retirees who are fully capable of taking care of themselves.
Robert Bennett, former U.S. Senator from Utah, is a part-time teacher, researcher and lecturer at the University of Utah's Hinckley Institute of Politics.
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