September 26, 2006
Kotlikoff: U.S. is Bankrupt and Headed Toward Financial Meltdown
For immediate release
Media contact: Brian Phillips (202) 464-5102)
Washington, D.C.—Long term fiscal obligations are driving the United States toward financial meltdown, said Professor Laurence Kotlikoff of Boston University. (Full interview at http://www.taxfoundation.org/podcast/show/1859.html)
When the Baby Boomers begin to retire, he explained, future obligations for Medicare, Medicaid, and Social Security will create a $63 trillion gap that will require doubling the pay roll tax and huge cuts in benefits in order to pay off.
"Think about 77 million Baby-Boomers getting roughly $40, 000 a head and you see the magnitude of the problem. We are talking trillions of dollars," said Kotlikoff, who is also a Research Associate with the National Bureau of Economic Research. "Forty-four thousand dollars times 77 million is a very big number."
Kotlikoff discussed the the looming budgetary catastrophe in an interview with Tax Foundation President Scott Hodge in the foundation’s most recent Tax Policy Podcast.
"We have to get control of our heath care spending," he warned. "It is very important for the elderly to be insured against high cost prescription drugs but they need to be asked to pay for this new entitlement program. We can not leave the whole bill to younger people and the elderly were asked to pay none of it."
Kotlikoff equated current policy with "fiscal child abuse". Lawmakers "are trying to get more when we are old and leave the bills for the next generation...We can not leave the whole bill to younger people," he said.
He proposed several "radical reforms" for fixing our finances, such as the Fair Tax, a federal retail sales tax coupled with rebates for those below the poverty line.
If you look comprehensively at "transfer programs", such as welfare, food stamps, AFDC, and Medicaid, he said, they all "have implicit taxes associated with them." Taken together, "you find that almost every household, and every individual in America, is facing either a high, very high, or astronomically high tax on working more" and saving.
"We need to have radical tax reform to get rid of all this complexity, to get to a very simple, transparent fiscal system that people can understand."
The interview is Number 8 in the Tax Foundation’s podcast series. It’s available online at http://www.taxfoundation.org/podcast/show/1859.html.
The Foundation publishes a podcast each Tuesday, featuring an interview that sheds light on the nation’s tax system. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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