There’s a tsunami on the horizon -- and it’s heading our way.
No, it won’t drown innocent lives or destroy the landscape as did the horrific tsunami of 2004. This tsunami is a financial one that threatens to bankrupt our children. The “perfect storm” has been created by the convergence of the promises our government has made through the Big Three entitlement programs: Medicare, Medicaid and Social Security.
If policymakers in Washington do nothing -- and let’s face, inaction is a specialty of theirs - and the deficit keeps rising, then by 2027 the Big Three (plus the resulting interest on the debt) will consume the entire U.S. budget.
That means there will be nothing left for defense, infrastructure, or anything else. And if that isn’t enough to make you want to seek higher ground, consider this: Every child in this country already is already on the hook to pay off the equivalent of a $187,000 mortgage -- but with no house attached. That’s how much each young person will have to pay in taxes just to provide promised Medicare, Medicaid and Social Security benefits to their elders.
You can understand why Stuart Butler and Alison Fraser, two of our top domestic policy experts at The Heritage Foundation, refer to this as “an entitlement spending tsunami” in an alarming new paper that outlines the dangers inherent in this approaching storm -- but also offers a way to soften the blow of this looming fiscal catastrophe.
A chart that accompanies the paper shows at a glance why this is no exaggeration. Tax levels over the last 50 years or so have hovered around 18 percent of GDP. Under current law -- that is, if we let President Bush’s tax cuts expire and we don’t fix the Alternative Minimum Tax, or AMT (a ticking time bomb I’ll return to below) -- that level will spike to 24 percent. As Butler and Fraser note, that’s “well above the highest levels the nation has ever experienced.”
Well, you may say, change the law: Make the tax cuts permanent and fix the AMT. Those are fine suggestions, ones that Butler and Fraser endorse wholeheartedly. Unfortunately, though, tax levels would still rise under such a scenario -- just not as high. Why? Because the Big Three -- Social Security, Medicaid and Medicare -- remain on autopilot, set to skyrocket in the decades ahead as 77 million baby boomers retire.