Podcast with Boston University Economist Laurence Kotlikoff
September 26, 2006
We’ve released a new episode of our “Tax Policy Podcast” this morning, featuring an eye-opening interview with Boston University economist Laurence Kotlikoff. The subject? The bleak future of U.S. fiscal policy in the coming decades. Here’s an interesting clip from the transcript:
Scott A. Hodge: I want to ask you about your most recent book, The Coming Generational Storm. You and your co author Scott Burns say America is facing very bleak financial future unless we change the path of our fiscal policy. And you have sort of backed it up in a more recent article with a very provocative question asking, “Is the United States bankrupt?” Well let me throw that back on you and ask, are we bankrupt? And what is this coming generational storm?
Laurence J. Kotlikoff: Yes I think we are because if you look at our long term fiscal obligations and compare them with our tax receipts that are projected to come in, you end up finding the difference in present value is equal to $63 trillion… So we’re facing a difference between all the projected spending and all the projected taxes which comes together to equal $63 trillion.
To come with $63 trillion in present value, you would have to have an immediate and permanent roughly 70 percent hike in federal corporate and personal income taxes. Alternatively you could immediately double the payroll tax. So we are talking about gargantuan adjustments here, huge problems that we are facing, and a lot of this has to do with the fact that the society is aging.
We are currently facing 33 million people over 65. But when the Boomers retire there will be about 77 million people over 65. And we are currently handing out per old person roughly $30,000 on average in Medicare, Social Security and Medicaid benefits. But when the Boomers retire we are going to be paying them a lot higher level of benefits because these benefit levels continue to grow much more rapidly than wages per worker.
So think about 77 million Baby Boomers getting roughly $40,000 per head, and you see the magnitude of the problem. We are talking trillions of dollars. $44,000 times 77 million is a very big number. It is in the trillions, A couple trillion dollars a year in obligations. So I do not think it is an exaggeration to say the country is bankrupt.
Click here to listen to the full interview. As a reminder, you don’t need an Apple iPod to listen in, just click the link to the audio file. For more about Prof. Kotlikoff’s life-cycle planning model discussed in the podcast, check out http://esplanner.com.