WASHINGTON -- Federal entitlement programs for older citizens, if kept at their present funding levels, will have "catastrophic consequences" on the incomes and living standards of American workers in the next century, the National Taxpayers Union said yesterday.
Releasing a study that it said was based on the government's own economic projections, the taxpayers' group sounded a warning that Social Security, Medicare and Medicaid may become too heavy a burden for younger workers. The organization said it foresees total tax rates as high as 69 percent for average workers by the year 2040 if these programs continue in their present forms.
The annual cost of Social Security and Medicare as a percentage of workers' taxable pay will rise from 16.5 percent last year to between 34 percent and 55 percent by the year 2040, the study said. The study follows a report by the federal Bipartisan Commission on Entitlements and Tax Reform that reflected congressional indecision on how to deal with the problem.
The co-chairmen of the commission, Sen. Bob Kerrey, a Nebraska Democrat, and Sen. John C. Danforth, a Missouri Republican, earlier this month proposed requiring all workers to open private retirement accounts and gradually raising the age for full Social Security and Medicare benefits to 70. They also suggested cutting Social Security taxes.
However, the 32-member commission, demonstrating the political sensitivity of these issues, failed to agree on a specific plan. Instead, they voted to ask President Clinton and Congress to strive for eventual reforms in the entitlement programs.
Commission members said that the central question is whether entitlement spending represents a crisis. At current rates of outflow, these popular programs, when added to interest on the federal debt, would consume all federal tax revenues by the year 2012, the commission found.
The fiscally conservative taxpayers' union clearly envisions a crisis.
"The graying of the welfare state is likely to have catastrophic consequences for the after-tax living standards of most working-age Americans," said Neil Howe, the organization's chief economist.
Agreeing substantially with the thesis of the bipartisan commission, the report of the taxpayers' group said that entitlement benefits next year will amount to 14 percent of the gross domestic product, rising to 23.5 percent by the year 2040 -- nearly what the entire federal government currently spends.
"Meanwhile, total government spending will rise from 34.4 percent to 43.9 percent of GDP," the study said. "To balance the budget, total tax revenue will rise even faster. In fact, it will rise more than twice as much between today and 2040 as it did between 1955 and today."