The Mad Hatter's Pity Party

The Mad Hatter's Pity Party; or, Will You Be Able to Retire Before You are 100?

Hidden away on page 20 of the draft of my "History of Taxation in Boone County, Kentucky" is this interesting information that you might want to take into consideration when you are planning for retirement.

I think we are in trouble . . .

This material is based on the work of Jagadeesh Gokhale and Kent Smetters, “Fiscal and Generational Inbalances: New Budget Measures for New Budget Priorities.” Federal Reserve Bank of Cleveland Policy Discussion Paper. March 2002.

Gokhale and Smetters asked this question concerning the Federal Debt:

If the government could get all of the future income that it can expect to get today, and use it to pay off all the future expenditures to which it is committed, today; would there be enough to cover all of the debts?

The answer, of course, is no; there would be a shortfall of $45 trillion dollars.  That is twelve times the official national debt, and about four times the national output.

They suggest four alternative ways the government could make up this shortfall:  My question is: What do you think the government will do? (Hint: Pick any two.)

(1)  Cut Federal discretionary spending to zero.
(2)  Cut Social Security and Medicare by 56%
(3)  Increase the Federal income tax by 69%
(4)  Increase payroll taxes by 95%

The real problem with these figures, as Niall Ferguson points out, is not in the calculations, or the final figures, which are very conservative, or even optimistic. In fact the shortfall would be a good deal more than $45 trillion, and the longer it goes without anything being done about it the worse it gets. Gokhale and Smetters calculated that by 2008 the income tax would have to go up by 74% just to break even. The real problem, as Ferguson says:  “To put it bluntly, this news is so bad that scarcely anyone believes it.”

Data cited from Niall Ferguson, Colossus: The Price of America's Empire (New York: Penguin, 2004), p. 269-272.


I tell you what; we'll discuss this again when we both get to be 100.  OK?

James Duvall, M. A.
Big Bone University
Nec ossa solum, sed etiam sanguinem.
Big Bone, Kentucky


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