9. DEBT: Medicare + SS as Drivers
1970: 20% of budget = Medicare + Medicaid + Soc. Security
2014: 47% big jump due to retiring Baby Boomers
2040: 56% = projected allocation (wishful thinking)
source: Peter G Peterson Foundation
12. Demographics Shift = Challenge
source: Committee for a Responsible Budget
• As US population ages, worker /
retiree ratio is falling
• By 2035 two workers will have to
support each retiree
• Leads to payroll tax shortfalls for
Social Security and Medicare
13. Demographics: Labor Force Participation
sources: HiddenLevers, Calculated Risk
Young
People
not
working
Retirees
need to
work still
14. Medicare + SS: Current Status
sources: WSJ. Social Security + Medicare Boards of Trustees Reports
• SS Trust Fund
Depleted in
2034
• After 2034,
taxes still pay
75% of benefits
15. Medicare + SS: Trust Fund Patches Over Time
Source: HiddenLevers, Congressional Research Service, Commonwealth Fund, Kaiser Health News
2010
Obamacare
1997
Balanced
Budget Act
1983
Medicare
Payment
Reform
• Medicare has neared insolvency almost once per decade
• Governments of both parties have pushed through reforms
• Reforms usually combined both cost cuts + tax increases
17. GOOD: Demographic Windfall
source: HiddenLevers
Millennials + Immigrants save the system
SS fully funded
+
no higher taxes
Labor Force
participation rises to
pre-2008 levels
Accelerating GDP
growth assumed
Labor force uptick
100% of benefits
intact
18. BAD: Trust Fund Depleted
Only 75% of benefits, based on intact payrolls
source: HiddenLevers
consumer
spending tanks
younger
Boomers pull
assets early
25c of every
1usd is from
SS Trust
19. UGLY: Payroll Taxes Dwindle
No alternatives
put in place by
Congress
source: HiddenLevers
GDP killer
lack of
consumption
Automation = job market collapse = no benefits
Capital v Labor
Assumes that
Capital wins
Japan + Europe
facing this now
20. Scenario: Debt Cliff
Good:
Demographic
Windfall
Bad:
Trust Fund
Depleted
Ugly:
Payroll Taxes
Dwindle
GDP Growth
-2.0%
S&P
-36%
GDP Growth
0.5%
S&P
-18%
GDP Growth
3.5%
Strong growth pulls
Millennials and immigrants
into labor market, funding
retiree benefits fully.
The status quo continues,
and Social Security benefits
drop 25% in 2030s as trust
fund is exhausted. Market
drops as retirees spend
assets.
Automation causes a drop
in employment under-
mining funding of benefits.
Potential for system
collapse could roil markets
and cause recession.
S&P
+15%
21. Debt Cliff – Take Aways
Medicare solvency = provider cuts RISK: automation causes payroll tax decline
Don’t conflate Trust Fund + SS depletionPrepare for 25% benefits cut in 2030s