In my previous post I demonstrated[1] a grim reality: using official government figures that under current accounting conventions, we would need a wealth tax approaching 100% in order to fully finance the enormous unfunded liabilities for Medicare and Social Security.
These unfunded liabilities represent promises made by U.S. policymakers that exceed the dedicated funding set aside to guarantee them. This means that to pay for said promises, we either have to be willing to raise taxes higher than they have ever been, borrow amounts than ever before have been possible or substantially cut back on what has been promised. There is no magic way to square the circle.
For those brave enough to dive deeper into this rabbit hole, I will use today's post to explain the two most important reasons the challenge of funding our two biggest entitlements is far bigger than advertised: the chasm to fill is much larger than the $97.8 trillion problem described in my last post:
- The alternative fiscal scenario demonstrates that Medicare spending is likely to be far larger than current official projections.
- The cost of delay increases with each passing year.
The Alternative Fiscal Scenario
Start with the alternative fiscal scenario. As the Medicare trustees have tried to explain ever since Obamacare was passed, the assumptions underlying projected spending on Medicare over the next 75 years are extremely unrealistic. That is, they will result in provider payment rates so low that Medicare beneficiaries are likely to face severe problems of access to care either because providers refuse to serve them (a problem already endemic among Medicaid beneficiaries) or because institutional providers such as safety net hospitals have literally gone bankrupt as a consequence of being paid too little.
The Medicare...