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A Nation of Entitlements

Created on July 21, 2008

A Nation of Entitlements

A Nation of Entitlements: Getting Spending Under Control

  • For the free DVD "A Legacy of Debt," click here.
  • For Stuart Butler's paper on taxes and entitlements, click here.
  • For a guide to fixing Medicare and Social Security, click here.
  • For Rebecca Hagelin's column on needed reforms, click here.

       It's a small world, all right. But big government spending on entitlements gives that old saw new meaning.

       America's annual outlays for Medicare, Medicaid and Social Security already exceed the economic output of 218 different nations, and continue to climb rapidly.

       At $1.24 trillion, entitlement spending actually hovers just below the gross domestic product of Canada ($1.27 trillion) -- the 13th-largest economy among 231 ranked by the U.S. government.

       To cover locked-in increases for entitlement programs, U.S. taxpayers in every income bracket will have to shoulder more than a doubling in marginal tax rates over the next few decades. Same goes for businesses and corporate tax rates.

       That's the calculation of the Congressional Budget Office, which said such tax rates "would probably not be economically feasible" and predicted the economy will "suffer serious damage" if Congress doesn't act to restrain the soaring costs of Medicare, Medicaid and Social Security.

       The nonpartisan CBO's recent letter on the subject, Heritage Foundation budget expert Stuart M. Butler writes, "is another dire warning to Congress that it should deal quickly with these unsustainable promises."

      Unless Congress takes entitlement spending off auto-pilot and subjects it to review and restraint, Heritage research shows, lawmakers will be responsible for saddling every child in America with the equivalent of a $175,000 mortgage debt -- only without a house to go with it.

      Combined spending on the Big Three entitlements isn't yet comparable in size to such Top 10 economies as Germany, the UK or France. But the price tag of Uncle Sam's middle-class retirement promises is gaining on the estimated economic output for 2007 of Italy, Spain and Mexico. It's well ahead of South Korea, Iran and Australia.

       If Social Security spending were a country, so to speak, its $581 billion in spending would bump oil-rich Saudi Arabia to No. 23 in the ranking of national purchasing power. That's also bigger than the GDP of close competitors Argentina, South Africa or Egypt.

       At $371 billion, Medicare spending comes in just below the GDP of Belgium (No. 28) but outstrips that of Malaysia, Venezuela and Sweden. And at $291 billion, Medicaid spending creeps up on the GDP of Hong Kong (No. 39) -- and outpaces Algeria, Norway and the Czech Republic.

       Of course, U.S. economic output remains the world's highest by far -- at $13.9 trillion, about twice that of No. 2 China. But the CBO estimates ever-growing entitlements mean federal spending will total more than a quarter of GDP in 2050 -- and more than a third about 30 years later.

       Doubled marginal tax rates "would significantly reduce economic activity," the CBO said in its letter to Rep. Paul Ryan (R-Wisc.), who had asked Congress' budget agency to estimate the impact of raising rates to pay for the huge increase in entitle­ment spending in future decades.

       "Three former CBO directors and budget ana­lysts from across the political spectrum have urged a fundamental restructuring of these programs, both to avert an economic crisis and to avoid placing an unacceptable burden on future generations," says Butler, Heritage's vice president for domestic and economic policy studies. "Yet proposals abound in Congress and on the campaign trail to create new entitlements and to raise taxes to pay for them."