How to Cultivate Sustainable Savings
By Jacob Feldman • Monday, August 3, 2009 10:15 am
The Joint Economic Committee has recently released a study diagramming the unfunded liabilities of HR 3200. Like Medicare and Social Security, HR 3200 expands financially unsustainable government commitments to health care. Currently, Medicare and Social Security programs over the next 75 years face a $51.3 trillion deficit. HR 3200 would add an additional $9.2 trillion to that deficit. The Joint Economic Committee explains why looking at 10-year window to score health care is insufficient:
“Financing any share of expanded health care spending with the proposed high-income tax base creates potential for a fundamental sustainability problem, a problem that does not show up prominently in 10-year budget “scores” of proposed health-care legislation. However, as experiences in the Social Security system and the Medicare program have shown, when a tax base grows slower than growth in spending, benefit promises become unfunded and deficits mount. Promises embedded in the Social Security and Medicare programs are unsustainable given current payroll tax rates because growth in payrolls has historically fallen short of growth in promised benefits. The only solution is to slow growth in promised benefits or increase taxes or some combination of the two.”
Like HR 3200, Medicare and Social Security began with the intent of a balance budget. However, legislative failure to consider the long-term consequences of funding has led to an unsustainable financial commitment that will end either by cutting benefits or by shrinking the tax base through tax hikes.
This article by no means argues against health care reform. Rather, sustainable reform can and should be done right. Voluntarily diverting one’s FICA tax toward personal defined-contribution accounts insures that a worker has savings for retirement or medical concerns. Individual Social Security accounts and health savings accounts incentivize Americans to be more productive since their retirement and health depends upon individual productivity. Guaranteeing savings for retirement is a win-win situation where Americans are financially secure and productivity isn’t stifled through high taxes.
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