Social Security and Medicare: The Economic Implications of Current Policy

The retirement of the baby boomers, rising life expectancy, and the rising cost of medical care are projected to place current federal policy on an unsustainable fiscal basis over the next several decades. Social Security outlays are projected to rise from 4% of gross domestic product (GDP) today to 6% of GDP in 2030 and Medicare and Medicaid outlays rise from 4% today to as much as 12% of GDP in 2030 and 21% of GDP in 2050. These increases in spending are not expected to subside after the baby boomers have passed away. Without any corresponding rise in revenues, this spending path would lead to unsustainably large budget deficits that would push up interest rates and the trade deficit, crowd out private investment spending, and ultimately cause fiscal crisis