Ben Stein: Entitlements ‘Bankrupt’ U.S. Today
Ben Stein, the economist, commentator, and one-time Nixon speechwriter, also well known for film and TV roles, says the cost of Medicare is already completely out of hand.
In fact, the future cost is beyond our ability to pay — period.
“Medicare is such a crisis you can hardly imagine,” Stein said in a video commentary for Fortune magazine. “Actuarially, the U.S. is bankrupt right now.”
He isn’t speaking theoretically. Stein says that the locked-in, required spending — figures not up for debate — simply overwhelm not only the potential income from taxes, but the actual value of the assets themselves.
“The liabilities foreseeable up until the year 2050 discounted back to present value exceed the total wealth of the nation,” Stein said.
“Every building, every warehouse, every K-Mart, every Wal-Mart, every Target, every Sears, every ship, every plane, every acre of wheat or corn, every oil well, put them all in one big bond, it would not equal the liabilities of Medicare,” he said.
According to the American Academy of Actuaries, Medicare spending in 2006 hit 3.1 percent of gross domestic product (GDP). That figure will jump to 6.5 percent of GDP by 2030 and rise to 11.3 percent by 2080.
Remember, too, that Medicare is not 100 percent coverage, so these estimates are not the total cost of health care, just the government’s liability.
Add Social Security entitlements, and things at first blush don’t seem so bad. Social Security payments added on are projected to total 12.7 percent of GDP by 2030, rising to 17.6 percent in 2080, according to the actuaries.
It can be easy to presume that the economy can potentially grow its way out of the entitlements mess — until you realize that GDP is the whole economy and not the federal budget.
Consider, for a moment, that federal revenues average 18 percent of GDP. This means that in 2007 — this year — 40 percent of federal revenues already goes to entitlements.
All things remaining equal, the Medicare and Social Security “bite” climbs to 80 percent of the budget by 2040.
Entitlement spending consumes the entire federal budget by 2080, bankrupting the government. Education, security, defense, disaster aid, housing, environment, science, transportation — everything else — gone.
“So it’s a real serious problem,” Stein said. “The solution to this problem is extremely difficult to figure out.”
Means-testing — simply put, requiring wealthier Americans to pay more out of pocket rather than rely on Medicare — is probably inevitable, Stein said.
That puts people who are doing the right thing and saving in a bind, since it adds an inestimable new cost to retirement: health care.
“As a close friend of mine says, this is the joker in the deck: What are your medical costs going to be when you retire?” Stein said.
“It could be much, much larger than you think. That means you have to save even more,” he said.
Scarily enough, the U.S. personal savings rate fell below zero in 2005 and is now a couple of points below zero.
Critics point out that such figures from the U.S. Department of Commerce mislead. For instance, the figure only counts after-tax savings. Your 401(k) and the value of your home are not added in.
Don’t look for a silver lining there, though. Home values in the third quarter fell 4.5 percent, following a 3.3 percent decline in the second quarter, according to the latest S&P/Case Shiller home price index.
And the massive number of adjustable-rate mortgages due to reset have not yet begun to kick in. That will add to the already large numbers of unsold homes on the market with no buyers to buy them — pressuring prices that much more.
Meanwhile, retirement research from Boston College shows that nearly three-quarters of Americans who are eligible to participate in 401(k) plans do so. Nevertheless, less than one in 10 of them contribute the maximum amount allowed under the plan.