A Nation of Entitlements
Created on July 21, 2008
A Nation of Entitlements: Getting Spending Under
- 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.
outlays for Medicare, Medicaid and Social Security already exceed
the economic output of 218 different nations, and continue to climb
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
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
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
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
"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."