Advancing a Free Society

The Looming Entitlement Fiscal Burden

Sunday, April 11, 2010

The entitlement fiscal burden from projected spending increases on retirement benefits and health care during the next couple of decades is scary for Western Europe, Japan, The United States, and other rich nations. I will concentrate on the US, but the picture is often as bad or worse in these other nations.

In 2010, spending on social security retirement benefits amounted to about 4.3% of American GDP, while Medicare and Medicaid added another 5 ½ %. This gives a total federal spending on health and retirement benefits of about 10% of GDP, which is 40% of overall federal government spending of 25% of GDP. Without incorporating the effects on spending of the new health care bill, and with no further changes in retirement ages and other aspects of social security benefits, the combined spending on these entitlements is expected to rise in twenty years to about 15% of projected GDP. The expected increase in spending on health of the elderly is the biggest component of this increase, although social security payments will also rise significantly.

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