Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 4 The Economics of the Public Sector
Chapter 12 of 36 The Design of the Tax System
Section 8 of 22
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Figure 2 – The Demographic and Fiscal Challenge
Panel (a) shows the U.S. population age 65 and older as a percentage of the population age 20 to 64.
Panel (b) shows government spending on Social Security, Medicare, and Medicaid as a percentage of GDP.
The projection for future years assumes no change in current law.
Unless changes in benefits are enacted
· government spending on these programs will rise significantly
· large tax increases will be required to pay for them
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Long-term projections of the U.S. federal government's budget show as years go by the government will spend substantially more than it will receive in tax revenue.
One reason for the rise in government spending is the elderly are a growing percentage of the overall population.
They receive Social Security and Medicare benefits, two of the three biggest spending categories.
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Over recent decades medical advances and lifestyle improvements have greatly increased life expectancy.
In 1950 a man aged 65 could expect to live to 78, now he can expect to live to 82.
In 1950 a woman aged 65 could expect to live to 81, now she can expect to live to 85.
People are having fewer children who enter the workforce and pay the Social Security and Medicare taxes.
In 1950, the typical woman had three children, today the number is about two.
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Added note - ChatGPT shows a different projection of federal government tax revenues and spending:
Including Social Security and Medicare, over the next several decades, as a percent of GDP what are the projected U.S. federal government tax revenues and spending?
ChatGPT:
Including Social Security, Medicare, and other federal programs, the projections for U.S. federal government tax revenues and spending over the next several decades, as a percent of GDP, indicate:
Tax Revenues:
Tax revenues are expected
· to increase from about 17.9% of GDP in 2023
· to approximately 20.8% by 2053
Government Spending:
When considering major entitlements like Social Security and Medicare, federal spending is projected to initially rise before stabilizing or slightly decreasing towards the latter part of the projection period.
-it starts at around 24.0% of GDP in 2023
· is expected to decrease to about 20.4% by 2053
This projection includes
· the growing costs of these entitlement programs, which are expected to increase significantly as the population ages,
· various new cost-control measures and healthcare reforms
The trajectory of spending includes significant contributions from Social Security and Medicare, which are subject to demographic pressures like the aging population and healthcare cost inflation.
However, the downward trend in the later years reflects assumed efficiencies, healthcare cost containment measures, and possibly reforms to entitlement programs.
These projections are sensitive to economic conditions, policy changes, and legislative adjustments, which could significantly alter the these projections.
… …
downward and upward trends
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