Notebook > Money

Trouble in the trillions

Money | New report will spur talk, if not action, on entitlements crisis

Issue: "Rich man, poor man," May 5, 2007

News broke last week on one of the most important stories of the decade, and it barely made a blip on the media radar screen. The trustees of the federal Medicare program on April 23 officially warned that the payroll tax dedicated to Medicare isn't raising nearly enough money to cover the costs of the program. By 2013, they said, 45 percent of the program's costs would have to come from general tax revenues.

Medicare's financial mess has been long known to economists and policymakers, but the trustees' latest projection forces President Bush, by statute, to submit to Congress next year a proposed reform of Medicare's finances-although Congress is under no obligation to act on it.

So far, Democrats have rejected Bush's idea of making seniors with incomes over $160,000 a year pay a higher premium for Medicare, and few in either party want to discuss broader reforms, such as raising the program's eligibility age.

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But Medicare's problems, which are far worse than the more-publicized troubles with Social Security, are not going away. The trustees offer several different ways of looking at the crisis, and all of them are alarming:

  • Sheer dollars. The trustees reported that over the next 75 years, Medicare will have an unfunded liability of $34.2 trillion.
  • Share of federal spending. By 2030, Medicare and Social Security will consume half of all federal tax dollars. By 2050, the two programs will take 75 percent of all tax dollars. In other words, the federal government is on a path to becoming largely a vehicle for funneling money to seniors.
  • Share of the economy. The trustees said that 75 years from now Medicare will devour more than one-tenth of the gross domestic product.

The statutory requirement that Washington at least consider reform means Medicare cannot be ignored completely in the coming election year, but the few voices for reform are growing weary. "There was a time when I was a bit more optimistic than I was today," said U.S. Treasury Secretary Henry Paulson, who has tried to set up bipartisan talks on entitlements. "I am getting a little bit tired of playing solitaire."

Balance Sheet

AUTOMAKERS: For the first time, Toyota surpassed General Motors as the world's bestselling automaker. The company reported selling 2.348 million automobiles during the first quarter, compared to 2.26 million for GM.

AIRLINES: Skybus Airlines Inc., a startup carrier in Columbus, Ohio, plans to offer at least 10 seats for $10 each on all of its flights. Company officials say they will keep prices down by selling advertising space on both the interiors and exteriors of their planes and by taking reservations only over the internet, eliminating the need for a call center. The airline will also charge for checking bags. The company plans to have flights from Columbus to Burbank, Calif., Portsmouth, N.H., Richmond, Va., and Kansas City, Mo., starting next month, with other destinations added later. "Beginning today," said Skybus CEO Bill Diffenderffer, "passengers can buy airline tickets for less than the cost of a tank of gas."

INVESTMENT: Venture capitalists invested $7.1 billion in U.S. startups during the first quarter, an 11 percent jump from the end of 2006 and the highest level in almost six years. The investment was part of 778 deals, according to a report last week from Pricewaterhouse Coopers, Thomson Financial, and the National Venture Capital Association.

Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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