* Associate Professor of Law, Boston University School of Law. For their valuable suggestions and contributions, I would like to thank my colleagues Alan Feld and Ted Sims, as well as the participants in the symposium in which these papers were presented.
1 See generally Daniel N. Shaviro, Reckless Disregard: The Bush Administration’s Policy of Cutting Taxes in the Face of an Enormous Fiscal Gap, 45 B.C. L. Rev. 1285 (2004).
2 See generally id.
3 See infra notes 13–32 and accompanying text.
4 See Shaviro, supra note 1, at 1299, 1302–03.
5 See id.
6 See infra notes 34–61 and accompanying text.
7 See infra notes 34–39 and accompanying text.
8 See infra notes 40–51 and accompanying text.
9 See infra notes 52–62 and accompanying text.
10 See Cong. Budget Office, The Budget and Economic Outlook: Fiscal Years 2005 to 2014, at xiv (Jan. 2004) [hereinafter Budget and Economic Outlook] (providing estimate for 2004), available at http://www.cbo.gov/ftpdocs/49xx/doc4985/01-26-BudgetOutlook-EntireReport.pdf; Alan J. Auerbach et al., The Budget Outlook and Options for Fiscal Policy, 95 Tax Notes 1639, 1648 (2002) (providing Congressional Budget Office (“CBO”) projections based on the January 2002 budget forecast). Recently, the CBO has provided the following “intermediate spending path” forecast for combined Social Security, Medicare, and Medicaid spending as a percentage of gross domestic product (“GDP”): 9% in 2010, 14.3% in 2030, and 17.7% in 2050. See Cong. Budget Office, The Long-Term Budget Outlook 7 (Dec. 2003) [hereinafter Long-Term Budget Outlook]; available at http://www.cbo.gov/ftpdocs/49xx/doc4916/Report.pdf. These figures are roughly consistent.
11 See Budget and Economic Outlook, supra note 10, at 12 tbl.1-6 (reporting 2003 Social Security and Medicare trust fund surpluses of $156 billion and $8 billion, respectively).
12 See Jagadeesh Gokhale & Kent Smetters, Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities 27 tbl.2 (2003) (estimating the fiscal gap at $44 trillion); Shaviro, supra note 1, at 1299 (estimating the fiscal gap at $74 trillion based on the “flow” fiscal gap calculation provided in Auerbach et al., supra note 10). In both cases, expenditures and funding are projected into perpetuity.
13 See Budget and Economic Outlook, supra note 10, at 3 tbl.1-2.
14 See Gokhale & Smetters, supra note 12, at 25; see also Ronald Lee & Ryan Edwards, The Fiscal Effects of Population Aging in the U.S.: Assessing the Uncertainties, in 16 Tax Policy and the Economy 141, 162 (James M. Poterba ed., 2002) (estimating that only about one-eighth of projected growth in federal spending is attributable to retirement programs including Social Security).
15 See Gokhale & Smetters, supra note 12, at 25.
16 See id. at 29.
17 See id. at 26 tbl.2.
18 See Long-Term Budget Outlook, supra note 10, at 19.
19 See id. at 32.
20 See Lee & Edwards, supra note 14, at 162.
21 See Paul Krugman, Social Security Scares, N.Y. Times, Mar. 5, 2004, at A23.
22 Projected Medicare cost growth is about equally attributable to demographic shifts and to growth in real spending per enrollee, estimated by the Medicare Trustees to outpace per capita GDP growth by one percentage point annually through 2080. See Long-Term Budget Outlook, supra note 10, at 4–5; Gokhale & Smetters, supra note 12, at 23.
Although a relatively small part of the overall story, the Social Security situation better exemplifies the picture painted by Professor Shaviro. According to Gokhale and Smetters, the Social Security fiscal imbalance is attributable entirely to past and current generations. The present value of payroll tax contributions by future generations actually exceeds the present value of their receipts. See Gokhale & Smetters, supra note 12, at 28. Thus, it appears that pay-as-you-go Social Security financing would be sustainable going forward. This also suggests that if the Social Security benefits of current retirees and the baby boomers ultimately are curtailed to some extent, this would not be generationally unfair. Past and current retirees and the baby boomers simply failed to fund the system adequately. Of course, significant benefit reductions could create tremendous hardship and may be politically infeasible, but compared with massive tax increases down the road, benefit cuts would increase generational equity.
23 See Shaviro, supra note 1, at 1317.
24 See id. at 1318.
25 Long-Term Budget Outlook, supra note 10, at 4.
26 See id.
27 Id.
28 See id.; see also Lee & Edwards, supra note 14, at 171 (arguing that the most important sources of uncertainty in Medicare spending forecasts are fertility rates and excess growth rates).
29 See Long-Term Budget Outlook, supra note 10, at 4.
30 See Shaviro, supra note 1, at 1313–23.
31 See Gokhale & Smetters, supra note 12, at 29.
32 See id.
33 See supra notes 13–32 and accompanying text.
34 See supra note 12 and accompanying text (explaining the balloon payment analogy).
35 See Budget and Economic Outlook, supra note 10, at 3 tbl.1-2.
36 See Shaviro, supra note 1, at 1293. Jagadeesh Gokhale and Kent Smetters provided the $44 trillion figure. Gokhale & Smetters, supra note 12, at 27 tbl.2. The $74 trillion figure is calculated by Professor Shaviro and based on Alan Auerbach, William Gale, and Peter Orszag’s projection of the “flow” fiscal gap described below. See Auerbach et al., supra note 10, at 1644 tbl.4; Daniel N. Shaviro, The Growing U.S. Fiscal Gap, World Econ. J., Oct.–Dec. 2002, at 2–3.
37 See Auerbach et al., supra note 10, at 1644 tbl.4; Shaviro, supra note 1, at 1293.
38 See Long-Term Budget Outlook, supra note 10, at 3.
39 See Auerbach et al., supra note 10, at 1649.
40 Calculations based on data from Budget and Economic Outlook, supra note 10, at 3 tbl.1-2.
41 See Bureau of the Pub. Debt, U.S. Dep’t of the Treasury, Historical Debt Outstanding—Annual 1791–1849, at http://www.publicdebt.treas.gov/opd/opdhisto1.htm (last updated Jan. 31, 2001).
42 See id.
43 See Budget and Economic Outlook, supra note 10, at 129–30 tbls.F-1, F-2.
44 See id. The only meaningful surpluses occurred between 1998 and 2001 and largely were attributable to the economic boom of the 1990s.
45 See Ctrs. for Medicare and Medicaid Servs., Total Medicare Income, Expenditures, and Trust Fund Assets During Fiscal Years 1970–2012, at http://www.cms.
hhs.gov/publications/trusteesreport/2003/tabiia2.asp (last modified Sept. 17, 2004) (presenting data from Bds. of Trs., Fed. Hosp. Ins. & Fed. Supplementary Med. Ins. Trust Funds, 2004 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds 3 tbl.I.C1 (2004), available at http://www.cms.hhs.gov/publications/trusteesreport/2004/tr.pdf); Soc. Sec. Admin., Trust Fund Data: Old Age, Survivors, & Disability Insurance Trust Funds, 1957–2003, at http://www.ssa.gov/OACT/STATS/table4a3.html (last updated Feb. 12, 2004) (presenting data from Bd. of Trs., Fed. Old-Age & Survivors Ins. & Disability Ins. Trust Funds, The 2004 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds 4 tbl.II.B1 (2004), available at http://www.ssa.gov/OACT/TR/TR04/tr04.pdf).
46 See Soc. Sec. & Medicare Bds. of Trs., A Summary of the 2004 Annual Reports, http://www.ssa.gov/OACT/TRSUM/trsummary.html (last visited Oct. 15, 2004).
47 See Ctrs. for Medicare and Medicaid Servs., supra note 45; Soc. Sec. Admin., supra note 45; see also Budget and Economic Outlook, supra note 10, at 139 tbl.F-11 (reporting 1985 GDP as $4.1 trillion).
48 See Budget and Economic Outlook, supra note 10, at 139 tbl.F-11.
49 See Ctrs. for Medicare and Medicaid Servs., supra note 45; Soc. Sec. Admin., supra note 45; see also Budget and Economic Outlook, supra note 10, at 139 tbl.F-11 (reporting that GDP at the end of 2003 was $10.8 trillion).
50 See Budget and Economic Outlook, supra note 10, at 139 tbl.F-11.
51 See id.
52 Social Security and Medicare can be seen as a response to individual myopia. If individuals tend to be unrealistically optimistic about enjoying good health or high investment returns in the future, they may save too little in purely private retirement and retiree insurance programs.
53 See Gokhale & Smetters, supra note 12, at 1–6; Auerbach et al., supra note 10, at 1648, 1653–54; Shaviro, supra note 1, at 1289–94.
54 See Auerbach et al., supra note 10, at 1645.
55 See supra notes 10–12 and accompanying text for an explanation of the projected increased costs of U.S. social insurance programs.
56 My colleague Alan Feld suggested that the biblical story of Joseph and the Pharaoh’s dream would provide a very useful analogy here, and I quite agree. In the Bible, Pharaoh dreams of seven lean cows swallowing seven fat cows and seven lean ears of corn swallowing seven fat ears. See Genesis 41:1–57. Joseph interprets the dream to mean that Egypt will enjoy seven years of plenty followed by seven years of famine, and Pharaoh puts Joseph in charge of grain management. Joseph builds storage facilities and stockpiles grain during the seven years of plenty. As predicted, seven years of famine follow, and Egypt is well prepared. Id. The moral of the story for our purposes is that storing grain is a great solution if you do not have to worry about rats.
57 Calculations based on data from Budget and Economic Outlook, supra note 10, at 3 tbl.1-2, 91.
58 See supra note 11 and accompanying text.
59 See Edmund L. Andrews, To Trim Deficit, Greenspan Urges Social Security and Medicare Cuts, N.Y. Times, Feb. 26, 2004, at A1.
60 See supra notes 33–56 and accompanying text.
61 See Shaviro, supra note 1, at 1304–05.
62 See id.
63 See, e.g., Edmund L. Andrews, Economic View: Managing the Deficit with Plans to Spend, N.Y. Times, Mar. 21, 2004, at C4 (reporting that growth in domestic discretionary spending would be held below inflation under the recently promulgated House Budget blueprint).