The term tipping point can be applied to a process in which, beyond a certain point, the rate at which the process continues will increase dramatically. The budget of the United States has reached its tipping point. A recent event could have, in fact, marked the point in time. The first Baby Boomer—born January 1, 1946—has applied for early retirement at age 62 and received her first Social Security check. On the chart, an upturn in the Medicare growth rate can be detected in 2011 when the first Baby Boomers turn 65. Thereafter, the number of retirees continues to increase while the number of workers per retiree continues to decrease. The pyramid scheme has collapsed.

This is the first, and only, chart in this presentation that is expressed in terms of constant dollars, with a base year of 2008 having been selected. This chart attempts to quantify the size of the commitment that lies ahead with Social Security and Medicare (leaving Medicaid aside for the moment). Using constant dollars removes the inflation factor from the projections thereby bringing some perspective to the numbers. Without this adjustment, the numbers would be far too large to make any sense. The total of the projected deficits—$83 trillion—through the year 2085 averages roughly $1 trillion per year in constant 2008 dollars. Contrast this with the fact that the surplus for the combined programs in 2008 was approximately $69 billion. If the message is not yet clear, it is this…The Spending Trend is not Sustainable.

*Note: Projections based on the intermediate assumptions of the 2008 Trustees’ Reports. The CPI is used to adjust from current to constant dollars.

This chart simply selects the data for the year 2032 from the Entitlements as a Percentage of GDP chart and compares the estimated growth in the entitlement programs against the estimated growth of the economy at that point in time. These projections assume that no new programs are added to the existing forms of coverage. Even absent any additional coverage, it is evident that more has been promised than can be delivered under the existing levels of taxation.

The fact that the population of the United States is aging is no secret. The magnitude of the increase may be surprising, however. The number of individuals over the age of 65 will double in 32 years—from 38 million to 77 million—an additional 39 million people over the age of 65. The total population of California today is 36.5 million. This demographic trend spells trouble for entitlement programs because the ratio of workers to dependents is declining.

The Government Accountability Office prepared the data for this chart using information from the Office of the Chief Actuary of the Social Security Administration, the Office of the Actuary of Medicare and Medicaid Services, and the Congressional Budget Office. The conclusion needs little explanation: Government spending for the big three entitlement programs, as a percentage of GDP, will triple in 70 years, primarily as a result of projected increases in healthcare costs.

The problem with the CBO Baseline is that the projection is based upon an assumption that has no historical basis. The assumption is that the growth in health care spending will decline to a growth rate that is 1% greater than GDP growth. In fact, the historical increase in Medicare and Medicaid spending has averaged 2.5 percentage points greater than the growth of GDP over the past 40 years. Using the historical rate of increase, Medicare and Medicaid alone would consume all tax collections by 2044 if the tax rate remained at the 2007 level of GDP (18.8%).