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What most politicians and posters here fail to discuss is the combined deficits that the Ponzi-like scheme nature of Social Security and Medicare portend for the future (see excerpt and table from Trustee 2004 Report below).

Having the government bargain for lower prices for drugs and health costs has been tried in Europe yet their Ponzi-like schemes are facing an earlier crisis than ours is.

In the US government bargaining for better Medicare drug prices will only put more pressure on prices for non-Medicare purchasers or drug companies will simply reduce costs by curtailing efforts to find newer drugs and drugs that can reduce other health care expenses.

Social Security does not by itself provide a secure retirement yet more people are depending on it for a large portion of their retirement income. In the way that SS has made more people dependent on government is not considered a good thing by anyone except perhaps some true believers in state power.

The degree to which the retiree income quintiles depend on SS for their total income :

Bottom 20% derive 80% of the total from SS
Lower Middle 20% derive 75% of the total from SS
Middle 20% derive 65% of the total from SS
Upper Middle 20% derive 45% of the total from SS
Top 20% derive 20% of the total from SS

Here's some information from 2004 Trustee's Annual reports that seems to spell out clearly a problem from the combined Medicare and SS trust funds shortfalls that have already occurred if one uses the funds that go from the general fund to pay for SMI deficits.

The Social Security tax income surplus in 2004 is projected to be more than offset by the shortfall in tax and premium income for Medicare, resulting in a small overall cash shortfall that must be covered by transfers from general fund revenues. This combined shortfall is projected to grow each year--such that by 2018 net revenue flows from the general fund to the trust funds will total $577 billion, or 2.6 percent of GDP. Since neither the interest paid on the Treasury bonds held in the HI and OASDI Trust Funds, nor their redemption, provides any net new income to the Treasury, the full amount of the required Treasury payments to these trust funds must be financed by increased taxation, increased Federal borrowing and debt, and/or a reduction in other government expenditures. Thus, these payments--along with the 75- percent general fund revenue contributions to SMI--will add greatly to pressures on Federal general fund revenues much sooner than is generally appreciated.

The following table presents the plot points for the data in Chart E--Combined OASI and DI, HI and SMI Income Shortfall to Pay Scheduled Benefits, and the 75-Percent General Revenue Contributions to SMI (as a percentage of GDP). The data is shown on a calendar year basis for the projection period (2004-2078), under the intermediate set of assumptions.

Plot points
2004 -0.56% 0.02% 0.90%
2010 -0.66% 0.10% 1.54%
2020 0.35% 0.42% 2.35%
2030 1.37% 1.06% 3.26%
2040 1.66% 1.76% 3.85%
2050 1.68% 2.29% 4.33%
2060 1.81% 2.82% 4.95%
2070 1.95% 3.53% 5.66%
2078 2.04% 4.14% 6.22%

It is also evident from Chart E that currently projected benefit costs for Medicare and Social Security pose a far more serious long-term financing problem than is generally understood. There is a big increase in the shortfall of dedicated payroll tax and premium income in the 2010 to 2030 period as the "baby-boom" generation reaches retirement age, but this shortfall continues to grow rapidly after that point due to expected faster-than-GDP growth in health care costs and to the increasing life expectancy of beneficiaries. In 2003, the combined annual cost of HI, SMI and OASDI was about 7 percent of GDP, or two-fifths of total Federal revenues. It is projected to more than double to 15 percent of GDP by 2040 and then to rise further to 20 percent of GDP in 2078, at which time it would exceed total Federal revenues at their historic share of 19 percent of GDP. We do not believe such a long-term rate of growth for the two programs can be sustained.

In summary, the projections for Medicare and Social Security under current law manifest mounting draws on Federal general fund revenues, exhaustion of trust funds beginning in 15 years (for HI) that would not permit full payment of currently scheduled benefits, and unsustainable long-term growth in costs. The sooner these problems are addressed, the more varied and less disruptive will be their solutions.

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