At the request of the Ranking Member of the House Budget Committee Rep. Paul Ryan (R-WI), the Congressional Budget Office (CBO) released a letter (pdf) today detailing the grave fiscal situation our country will be in should Congress fail to reform Social Security, Medicare, and Medicaid now.

Already Social Security and Medicare consume 7.5% of our GDP. Unless changes are made that figure will jump to 13% by 2030. There are three basic alternatives Congress has to address this problem:

  1. Deficit finance this massive increase in spending. According to CBO’s analysis, deficit finance would by 2040 cause a halt in per capita income growth, and by the late 2040s per capita income would be down 17 percent.
  2. Finance this spending by raising taxes. According to CBO, assuming no economic consequences from higher taxes, tax rates would have to more than double. CBO calculates the 10 percent individual income tax bracket would have to increase to 25 percent. The 25 percent tax bracket would have to increase to 63; and the top bracket would jump to 88 percent. As CBO notes, “such tax rates would significantly reduce economic activity and would create serious problems with tax avoidance and tax evasion.”
  3. Restrain the growth in spending.

Heritage Senior Fellow Dr. JD Foster comments: “Budget analysts and commentators across the political spectrum have worked hard to explain and to establish beyond a shadow of a doubt that the nation’s big three entitlement programs – Social Security, Medicare, and Medicaid – are unsustainable and must be reformed. This letter from the Congressional Budget Office to Congressman Ryan puts an emphatic exclamation point on this work. The CBO analysis makes clear and indisputable the economic calamity that will befall the nation if congressional inaction continues. The entitlement programs represent an avoidable disaster, but Congress must act to avoid it.”

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