Panel
Entitlements: A Collision Course With Fiscal Reality
Milken InstituteJosh Barro, Jared Bernstein, Andrew Biggs, Chris Hughes, Maya MacGuineas, Eric Schmidt, Andrew McAfee, Jonathan Zittrain, Jared King, Nancy Gertner, David Rockefeller, Anne Coughlin, Eric Schwartzman
- Medicare and Social Security trust funds are projected to face long-term strain as medical expenses and life expectancy outpace inflation, with the Social Security trust fund expected to deplete resources by 2034, leaving incoming tax revenue to cover only approximately 75% of current benefits.
- The actuarial shortfall for Social Security is estimated at 1% of GDP over 75 years, comparable to a 10-year tax cut, with potential partial solutions including a 1 percentage point payroll tax increase to close half the gap and raising the taxable earnings cap to address about one-fifth.
- Alternative revenue mechanisms and policy shifts are anticipated, including repealing tax cuts, closing capital gains loopholes, or raising rates to 50% on income above $250,000 to fund modernized Earned Income Tax Credit programs costing nearly $300 billion or $2 trillion over a decade.
- Future healthcare trends predict that public options or Medicare expansion could dominate the market due to price negotiation advantages, potentially squeezing out private insurers, while high costs remain driven by outpatient care payments and patent systems totaling $300–$350 billion annually.
- State and local pension systems face severe liabilities, with specific cases in Illinois, New Jersey, and Puerto Rico showing systems beyond saving or depleted, while teacher pension contributions could rise to 25% of pay, with half servicing past debt.
- Demographic and economic shifts include the gig economy comprising nearly all jobs in the last decade, a public sentiment where young people lack confidence in Social Security, and a projected rapid shift toward a new social contract focused on poverty eradication.
- Structural risks involve tax-funded deficit financing becoming a robust political option, interest payments on national debt growing by $190 billion annually if rates rise 1%, and the intergenerational transfer of financial liabilities from state and local governments.
- Proposed budget reforms anticipate the "Joint Select Committee" implementing an "intergenerational pay-as-you-go" rule and future metrics rewarding long-term savings rather than restricting analysis to a 10-year window.
- Political consensus on entitlement solutions is complicated by recent tax plans, while means-testing for higher earners is expected to generate minimal revenue compared to the total funding gap, and cutting benefits to solvency would require fundamentally altering the current Social Security structure.
- Long-term financial sustainability is challenged by a "robbing Peter to pay Paul" dynamic between Medicare and Social Security, where cost reductions in one directly impact benefits in the other, alongside concerns that high mobility of the super wealthy could limit the effectiveness of raised tax rates.