How to greatly reduce the fiscal burden of entitlements

Despite the seriousness of the rapid increase in government spending and fiscal deficits, the main budgetary issue facing all developed countries during the next couple of decades is the expected growth in spending on entitlements: mainly, spending on retirement incomes and medical care given to the elderly, says Gary Becker, an economist and Nobel laureate.

For example:

The growth in these expenditures is partly due to growing life expectancy and relatively low birth rates that will raise the number of retirees collecting social security benefits while reducing the relative number of men and women who are working to pay for these benefits.

The growth in medical entitlements is mainly the result of technological advances and other changes that have led to a sharp expansion in both private and public spending on medical care during the past several decades, an expansion that is expected to continue into the future.

According to Becker:

The United States and other countries should greatly raise over time the retirement age before the average person can become eligible for either social security retirement income or publicly-funded health benefits.

The United States has been slowly increasing the normal retirement age in stages first from age 65 to 66, and then to age 67 for everyone born after 1960.

These have been steps in the right direction, but they do not go far enough and have been too slow, says Becker:

It is time to raise more rapidly the normal retirement age for persons in reasonably good health to age 70 before they become eligible for either Social Security or Medicare benefits.

This would add three years to taxable earnings, and eventually reduce the number of elderly collecting Social Security benefits by almost 20 per cent compared to what it would be under present retirement ages.

It would also significantly reduce spending on Medicare, although by less than 20 per cent since persons over age 75 take the bulk of this spending because they are in worse health than younger retirees.

Source: Gary Becker, How to Greatly Reduce the Fiscal Burden of Entitlements, The Becker-Posner Blog, June 27, 2010.

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First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 13 July 2010
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