Monday, August 8, 2011

Do The Numbers

The present value of our social security and medicare liabilities can be conservatively estimated at $ 66 trillion. How do we deal with that?

Lets tax the rich! If we raise taxes, ala the Obama plan to eliminate the Bush tax cuts for the rich, we will gain $ 770 billion in revenues over the next ten years. That assumes, of course, that business folks don't alter their plans after getting socked with this tax increase. So, let's assume we tax the rich. That gets us $ .7 trillion. That leaves $ 65.3 trillion to go.

What next?

Well, perhaps bondholders will step up and buy $ 65.3 trillion more in our debt to fund our retirement and health care. You think the Chinese will do that?

Here are some more numbers. A twenty two year old college graduate might work 40 years and then retire at 62 and collect social security (that's right, three-quarters of Americans take the early retirement option at 62 (now 63), so 62 (now 63) is relevant age, not 65). So, they don't work from zero to age 25 and then they don't work from age 63 to 83. That's 45 years of no work and 40 (41) years of work. And, they plan to live at, more or less, the same lifestyle in all of these periods. Really? Since the typical American doesn't remotely save enough to do this, who will step up to the plate? That's where the $ 65.3 trillion shortfall comes in. Who will put this money up?

What eventually will happen is that the US will dishonor it's pledge to its senior citizens. It won't have any choice. It will not have the money or the borrowing capacity to come up with $ 65.3 trillion.

So, S&P is right.

Only politicians and hack journalists think this is do-able if only the tea party would go away or if only we could "tax the rich."

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