CONSEQUENCES OF INACTION: THE FISCAL CLIFF AND THE LOOMING ENTITLEMENT CRISIS

The United States is just weeks away from a $7 trillion fiscal cliff, when, among other changes, marginal tax rates are scheduled to rise to levels not seen in more than a decade and $1.2 trillion in automatic spending cuts (known as sequestration) are scheduled to take effect. The consensus among economists is that if this fiscal cliff is not preempted, the American economy will fall into recession.

As large and consequential as the pending fiscal threat may be, it is not the last fiscal cliff our economy will face (and neither is it the first we have confronted). The impending insolvency of Medicare and Social Security, equally certain as the near-term fiscal cliff without Congressional intervention, would also cause painful fiscal contractions if not averted.

Policymakers and policy analysts are well aware of both the near- and long-term fiscal threats posed by inaction. The consequences of failing to solve these problems, however, are less appreciated. Each problem has a unique makeup and poses specific challenges to policymakers. This paper explores the implications of the seemingly unimaginable actually occurring, first looking at the consequences of the near-term fiscal cliff and then focusing on the Social Security and Medicare entitlement crisis down the road.

Part 1: Near-Term Fiscal Cliff

The tax increases and spending cuts that comprise the approaching fiscal cliff are slated to take effect at the beginning of 2013. This unfortunate combination is the result of an ill-timed confluence of two separate legislative acts—the scheduled expiration of tax cuts first enacted in 2001 and 2003 and the introduction of scheduled defense and nondefense sequestration.

This section examines the origins of the fiscal cliff and details the economic consequences of going over it. Broadly, the Tax Policy Center and the Joint Committee on Taxation estimate that the 2013 budgetary difference between going over the fiscal cliff and not going over—that is, extending nearly all tax cuts and avoiding sequestration—would total $536 billion.[1] If lawmakers avoid the scheduled tax increases and spending cuts, the Congressional Budget Office (CBO) estimates that the U.S. debt-to-GDP ratio would skyrocket, reaching 109% of GDP by 2026 and approaching 200%  of GDP in 25 years.[2] Such an outcome is not fiscally sustainable.

Taxes and the Fiscal Cliff

The origins of the pending tax increases lie in a number of different tax bills over the last few years. As scheduled according to current law, taxes and tax rates will rise, beginning on January 1, 2013, for the following reasons[3]:

  1. Provisions of the Bush tax cuts will expire. Legislation enacted in 2001 and 2003 lowered individual income tax rates, reduced capital gains and dividends tax rates, provided so-called marriage penalty relief, repealed limits on itemized deductions and personal exemptions, and increased the child tax credit, among other tax changes. Most provisions were originally scheduled to expire at the end of 2010. The lower dividends and capital gains tax rates were originally scheduled to expire in 2008 but were subsequently extended through 2010. In December 2010, all these policies were renewed through the end of 2012.
  2. Tax credits expanded by the American Recovery and Reinvestment Act will expire. Also scheduled to expire is the American Opportunity Tax Credit, a renamed and expanded version of the HOPE Credit for college students that was enacted as part of the 2009 stimulus bill and subsequently extended for two years in 2010. The increase in the earned income tax credit and the expansion of the refundability of the child tax credit are also scheduled to expire.
  3. The payroll tax cut will expire. Another effort at economic stimulus—reducing employees’ share of the payroll tax from 6.2% to 4.2%—is set to expire at the end of 2012. This cut, enacted in 2010, was intended to last just one year but was subsequently renewed.
  4. Congress has not renewed regularly expiring tax provisions. On the individual side, these provisions, known as extenders, cover a range of policies, including the deductibility of state and local sales taxes, tax benefits for purchases of mass transit benefits and parking expenses, and deductions for certain education expenses. On the business side, extenders include the research and experimentation tax credit and the work opportunity tax credit. Some extenders have already expired, while others will expire by the end of the year.
  5. New taxes from the Affordable Care Act will kick in. Starting in 2013, the Unearned Income Medicare Contribution tax will increase the tax rate on dividends, interest, and capital gains by 3.8 percentage points for high-income households. High earners will also face a 0.9 percentage point increase in the payroll tax rate on their wages.
  6. The alternative minimum tax “patch” expired for 2012. The AMT is a parallel tax system that was originally intended to ensure that the wealthy pay a fair share of taxes, but that now affects ordinary Americans unless Congress exempts them. With the AMT patch expired for 2012 and beyond, 32.4 million taxpayers who are now subject to the AMT will have increased tax liability when they file 2012 returns.[4]

The combined outcome of these changes in 2013 alone would include, among other ill effects, an increase of more than $500 billion in total tax liability; an increase in the average federal tax rate (individual income, payroll, corporate income, and estate taxes) from 19% to 24%; and a tax hike of nearly $2,000 on middle-income households.[5] In the aggregate, this tax increase is approximately 3.5% of GDP.

Spending and the Fiscal Cliff

Sequestration has its origins in the Budget Control Act of 2011 (BCA), which increased the debt limit, imposed discretionary spending caps, and established the bipartisan, bicameral Joint Select Committee on Deficit Reduction (the Super Committee). This committee was tasked with proposing legislation, which could not be amended and was guaranteed expedited congressional consideration, comprising up to $1.2 trillion in deficit reduction over 10 years. The BCA included the stipulation that failure by the Super Committee would trigger nine years of sequestration—across-the-board spending cuts totaling the $1.2 trillion deficit target.

On November 21, 2011, members of the Super Committee announced their failure to reach an agreement, which scheduled sequestration to begin in January 2013 and last through fiscal year 2021. As required in the BCA, the cuts will be split evenly between defense and nondefense nonexempt funding,[6] with 18% of the savings assumed to accrue from reduced debt service payments. The net result will be $109.33 billion in annual cuts.

Table 1. Sequestration by Category ($ billions)

Total Sequestration Cuts

$1,200

Assumed Costs From Debt Payments (18%)

216

Net Programmatic Cuts (over 9 years)

984

Annual Cuts

109.33

Defense Cuts

54.667

Nondefense cuts

54.667

 Source: OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P.L. 112-155),

 September 2012.

Based on estimates from the Office of Management and Budget, the cuts for fiscal year 2013 will be broken down as follows[7]:

  • Defense cuts:
    • 9.4% cut in discretionary defense funding ($54.599 billion)
    • 10% cut in mandatory defense funding ($68 million)
    • Nondefense, non-Medicare cuts:
      • 8.2% cut in discretionary nondefense funding ($38.021 billion)
      • 7.6% cut in mandatory nondefense funding ($5.534 billion)
      • Medicare cuts:
        • 2% cut in each Medicare provider payment  ($11.085 billion)[8]

Economic Consequences of the Pending Fiscal Cliff

If the United States does in fact go over the cliff, economic growth will certainly contract. While the likelihood of lawmakers allowing the nation to go over the fiscal cliff is low, it is not entirely out of the question. In fact, economists in a Wall Street Journal survey in November 2012 predicted a 21% chance that the country would go over the cliff.[9]

Even if the cliff is averted, continued fiscal drag from the wind down of the 2009 stimulus bill and termination of other policies will constrain the U.S. economy in 2013. Goldman Sachs chief U.S. economist Jan Hatzius predicts, “Even if most or all of the Bush tax cuts are extended and most of the automatic spending cuts are postponed, fiscal drag is likely to shave 1½–2 percentage points from GDP growth in early 2013.”

In addition, the economic uncertainty in the run-up to the cliff will itself have negative effects. According to a Bank of America analysis:

The government is threatening to change many of the rules around taxes and government spending. This makes business and investment planning very difficult. Most important, companies that have contracts with the Federal government will worry about the impact of the “sequester”—even if across-the-board spending cuts will be avoided they will not be sure if they are among those who will be cut.[10]

Simply postponing components of the fiscal cliff would not mitigate the uncertainty-induced economic problems either, according to the Bank of America analysis: “We would expect the uncertainty shock to weaken the economy both in advance of the Cliff and as long as major issues about the Cliff remain unresolved.”[11]

The International Monetary Fund also expressed concern over fiscal uncertainty in its recently released global economic forecast.[12] And Federal Reserve Chairman Ben Bernanke echoed this concern in an address to the New York Economic Club in November:

The phasing-out of earlier stimulus programs and policy actions to reduce the federal budget deficit have led federal fiscal policy to begin restraining GDP growth. Indeed, under almost any plausible scenario, next year the drag from federal fiscal policy on GDP growth will outweigh the positive effects on growth from fiscal expansion at the state and local level. …

The realization of all of the automatic tax increases and spending cuts that make up the fiscal cliff, absent offsetting changes, would pose a substantial threat to the recovery—indeed, by the reckoning of [CBO] and that of many outside observers, a fiscal shock of that size would send the economy toppling back into recession. … Uncertainty about how the fiscal cliff, the raising of the debt limit, and the longer-term budget situation will be addressed appears already to be affecting private spending and investment decisions and may be contributing to an increased sense of caution in financial markets, with adverse effects on the economy.[13]

Should the United States actually fall off the cliff—with tax increases and sequestration going forward as scheduled—the CBO maintains that this will prompt “an amount of deficit reduction over the course of a single year that has not occurred (as a share of GDP) since 1969.”[14] The suddenness of the reduction will result in a 0.5% drop in GDP in 2013, the CBO estimates. Relative to the CBO forecast under the assumption that the fiscal cliff is averted, the economy would be 2.2% lower at the end of 2013.[15] While growth is projected to strengthen toward the end of 2013 under this scenario, the CBO projects that the economy would not grow at its potential again until 2018.[16] The CBO also expects the economic contraction to result in higher unemployment—specifically, an estimated 9.1% unemployment rate at the end of 2013 (up from a forecasted average rate of 8.2% for 2012).[17]

Further Implications of Falling Off the Fiscal Cliff

In addition to its direct, near-term impact, the fiscal cliff would also have significant negative consequences over the long run, particularly in terms of the higher marginal tax rates it would induce. According to the Tax Policy Center:

Average effective marginal tax rates—the tax paid on the last dollar of income, which most affects taxpayer decisions—would rise by about 5 percentage points on wages and salaries and on interest income, by about 7 percentage points on realized capital gains, and by more than 20 percentage points on qualified dividends. … Average marginal tax rates would increase for every income group, but would increase the most at the very highest income levels.[18]

One channel by which higher marginal tax rates would discourage growth is by reducing labor supply.[19] Nobel Prize winner Edward Prescott has demonstrated this powerful link in his cross-country comparison of labor supply and tax rates in developed nations.[20] A number of economists have also found the labor supply of married female workers to be particularly sensitive to marginal tax rate increases.[21] Furthermore, higher statutory rates lead households to report less taxable income as the benefit of tax shelters and other avoidance or income recharacterization schemes increases.

In addition, the fiscal cliff will result in higher tax rates on dividends and capital gains, effectively a penalty on saving and investment. The marginal tax rate on dividends is set to nearly triple and the top rate on capital gains will rise from 15% to 23.8%. As my AEI colleague Alan Viard and I pointed out, “Raising the dividend tax will hamper investment, eroding the capital stock and slowing long-run economic growth. A smaller capital stock makes workers less productive, holding down their wages.”[22] In other words, while lower tax rates for dividends and capital gains are often portrayed as tax breaks for the wealthy, the benefits of these targeted breaks are felt throughout the economy.

These long-term effects would before long coincide with the impending crisis in entitlement spending—the topic of the next section.

Part 2: Long-Term Entitlement Crisis

Medicare and Social Security represent ticking time bombs on the U.S. fiscal horizon, as entitlement spending is widely recognized to be unsustainable. Projections vary depending on the assumptions in play, and dates and expenditures have shifted somewhat over the last 10 years to accommodate changes in economic and demographic forecasts. In other words, there is some degree of uncertainty today about precisely when entitlement programs will implode. But there is no uncertainty that these events will occur, and exactly when will become clearer as we approach the moment of crisis.

In this section, I summarize the bleak forecasts for Social Security and Medicare and outline the projected consequences of insolvency in terms of benefit cuts. I then discuss the downside of delaying the approaching crisis rather than addressing it. I conclude this section by examining the entitlement programs’ impact, absent serious reform, in terms of the growing national debt.

Social Security

Roughly 55 million people were enrolled in Social Security in 2011. Expenditures for that year totaled $736 billion, while total income was $805 billion. Yet only $691 billion was non-interest income, making 2011 the second year in a row that expenditures exceeded non-interest income.[23]

The Social Security program is financed through two separate trust funds—one for Old-Age and Survivors Insurance (OASI) and one for Disability Insurance (DI). Collectively, total income for the trust funds is projected to exceed costs through 2020. From 2021 on, however, the Social Security trustees anticipate an imbalance between expenditures and total income until the trust funds are completely depleted in 2033. The DI trust fund is in much worse shape than the OASI trust fund and separately would become insolvent in 2016, whereas the OASI trust fund would not be depleted until 2035.[24] The DI trust fund need not sink on its own, however. As the trustees note, “In the absence of a long-term solution [for the DI trust fund], lawmakers could reallocate the payroll tax rate between OASI and DI, as they did in 1994.”[25]

According to current forecasts, after 2033, Social Security beneficiaries could expect a 25% reduction in benefits relative to the benefits they are currently expecting.

In 2011, Social Security spending totaled 5% of GDP. The trustees estimate that costs as a share of GDP will increase to 6.4% by 2035.[26] Income to the Social Security Trust Funds is expected to decline from 4.9% of GDP in 2021 to 4.6% of GDP by 2086.[27] The gap between the expected income to Social Security and the promised benefits in 2033 will be nearly 2% of GDP.

The CBO has made similar projections about the solvency of the Social Security trust funds, estimating that after 2034, the trust funds will be exhausted. However. The CBO projects that the reduction in benefits will be closer to 20% (compared with the Social Security Trustees’ estimate of 25%). Even at this level, the dollar impact on retirees will be large—$4,000 per year for middle-income earners when they reach retirement.[28]

Medicare

Nearly 49 million people were enrolled in Medicare in 2011. Expenditures for that year totaled $549.1 billion, while income was just $530.0 billion—an obvious sign that Medicare’s financial woes are not simply future concerns.[29]

The Medicare board of trustees has warned that the trust fund for Medicare Part A (the most expensive component of Medicare, covering hospitals, home health, skilled nursing facilities, and hospice care) will be depleted in 2024. According to the trustees, “Under a literal interpretation of current law, payments would be reduced to levels that could be paid from incoming tax and premium revenues when the HI trust fund [which covers Part A] was depleted.”[30] In 2024, 87% of Part A benefits could be covered, dropping to 67% in 2050, and rising slightly by 2086 to 69%.[31]

 The gap in 2024 is approximately 0.6% of taxable payroll, or about 0.25% of GDP. By this metric, the “cliff” consequence of the Medicare Part A trust fund’s being depleted is far less than the consequence of Social Security’s insolvency or the 2013 fiscal cliff. This does not mean though that the challenges related to Medicare are less important. To the contrary, because the Medicare program’s projected growth rate is significantly greater than that of Social Security, the expected budgetary consequences of Medicare accumulate rapidly in the coming decades and beyond.

As if this news were not grim enough, total Medicare spending as a share of the economy is projected to increase dramatically over the next 75 years, from 3.7% of GDP in 2011 to 6.7% in 2086.[32] And this projection is not as dire as it could be. It includes only current law assumptions, excluding likely policy changes. In two other highly plausible scenarios, the trustees estimate that Medicare spending could easily reach 7.8% or 10.3% of GDP in 2085.[33]

Consequences of Medicare and Social Security Insolvency

Social Security. If the Social Security trust funds are depleted in 2033 as projected, benefits would be reduced immediately by 25%. In addition, my AEI colleague Andrew Biggs, when he served in the Social Security Administration’s Office of Retirement Policy, predicted the following consequences of insolvency:

The lowest income quintile would experience the greatest drop in their total retirement income because they have fewer non-Social Security resources to call upon. Younger retirees would experience a greater reduction in lifetime benefits than older retirees because they would spend a greater share of their retirement in the post-insolvency period. Women would experience a greater reduction in lifetime benefits than men because women generally start receiving benefits earlier and live longer and are therefore likely to collect benefits for a greater number of years past the trust funds' exhaustion date.[34]

Medicare. The trust fund for Medicare Part A has no established backup funding (from general revenues, for instance).[35] If this trust fund becomes insolvent in 2024 as projected, benefits would be immediately cut by 13%, as mentioned above.

Unlike Medicare Part A, Parts B and D are funded partially through general revenues, in addition to beneficiary premiums and, more recently, fees from drug manufacturers and importers.[36] Therefore, Medicare Parts B and D are not in danger of insolvency. This is not cause for celebration, however, because it entails an enormous future strain on general revenues. As a recent Congressional Research Service analysis warned:

Due to its automatic financing provisions, the SMI account [the Supplemental Medical Insurance Trust Fund covering Parts B and D] is expected to be adequately financed into the indefinite future; therefore the unfunded obligations are considered to be $0. … However, estimated SMI expenditures of $29.3 trillion over the next 75 years are expected to exceed premium revenues and state payments by $21.6 trillion; general fund transfers of this amount will be needed to keep the SMI trust fund in balance for the next 75 years.[37]

Delaying the Crisis Can Worsen the Problem

Substantially reforming an entitlement program is fraught with political and policy difficulties but is not without precedent. The Greenspan Commission in the early 1980s, for example, spared Social Security from immediate insolvency and made it a viable program for several decades.[38]

Nevertheless, a tempting—and oft-employed—approach to the looming entitlement crisis is making small policy changes or engaging in budgetary maneuvers to delay the onset of the programs’ insolvency. These tactics are not peculiar to entitlement programs. The same dynamic is at play in policymakers’ approaches to the near-term fiscal cliff.

For example, Sen. Dick Durbin (D-IL) in September proposed delaying the fiscal cliff for six months to give lawmakers time to come to an agreement on taxes and spending—an agreement that has already eluded them for many months, if not years.[39] The House of Representatives passed legislation to delay the tax hikes for one year to provide time to undertake tax reform. In addition, the House passed alternatives to the sequestration of defense spending. However, none of its efforts have been considered by the Senate.

While kicking the can down the road, as the saying goes, may seem harmless, there are real costs to delaying pursuit of a long-term solution. Failure to address a problem structurally is worse in the long run than failure to avoid the problem in the short run. The negative economic consequences induced by policy uncertainty factor into this, but the greater reason lies in the ever-increasing national debt and the growing burden of servicing that debt. Avoiding structural entitlement reform means adding substantially to the debt, given the huge and unpaid for costs of the programs.

Consequences of Higher National Debt

For understanding the economic impact of debt, a country’s debt-to-GDP ratio is more significant than its actual level of debt. Economists Carmen Reinhart and Kenneth Rogoff have found that debt-to-GDP ratios above 90% should inspire concern, as that proportion (and above) leads to slower economic growth.[40] In 2011, the U.S. debt-to-GDP ratio was approximately 73%, when accounting for public debt only. Factoring in intragovernmental debt—which arises when one federal account borrows from another, such as the general fund borrowing from the Social Security trust fund—the ratio was roughly 105%.[41]

In addition to the macroeconomic consequences of carrying debt in high proportion to GDP is the added burden of servicing that debt. My AEI colleagues Aspen Gorry and Matthew Jensen have measured the distributional burden of servicing the U.S. national debt, in terms of the tax increases on households that it would require. They conclude that “the $10.927 trillion of net debt projected to accrue under current policy would lead to long-run average [annual] household interest costs of $32 for the 10–20 thousand dollars income group, $1350 for the 50–75 thousand dollars income group, and $9,425 for the 200–500 thousand dollars income group.”[42] These are large and unnecessary burdens to place on households—and an economy—that otherwise could be focused on productivity and growth.

Conclusion

Policymakers are confronted with a difficult and delicate task: reducing deficits and debt, curbing entitlement spending, and determining appropriate levels of taxation—all without sending the economy back into recession. As the Medicare trustees advised in their most recent report, “The sooner solutions are enacted, the more flexible and gradual they can be.”[43] Though the trustees were focused on Medicare when they offered this piece of advice, policymakers would do well to heed it in all areas. Flexible and gradual solutions will be essential to sustaining and improving economic health while addressing the issues considered in this paper. What exactly those solutions should entail is obviously of utmost importance. Having laid out the dire consequences posed by the near-term fiscal cliff and the long-term entitlement crisis, I hope that this paper will encourage lawmakers to seek solutions to prevent either from becoming reality.

 

The views expressed herein are those of the author and do not necessarily state or reflect those of the National Chamber Foundation, the U.S. Chamber of Commerce, or its affiliates.




[1] Roberton Williams, Eric Toder, Donald Marron, and Hang Nguyen, “Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?” Urban-Brookings Tax Policy Center, October 1, 2012, 7, www.taxpolicycenter.org/UploadedPDF/412666-toppling-off-the-fiscal-cliff.pdf.

[2] Congressional Budget Office (CBO), “The 2012 Long-Term Budget Outlook,” June 2012, 4, www.cbo.gov/sites/default/files/legacy/foundation/cbofiles/attachments/LTBO_One-Col_2_1.pdf.

[3] For a fuller discussion of these tax components of the fiscal cliff, see Roberton Williams, Eric Toder, Donald Marron, and Hang Nguyen, “Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?”

[4] Richard Rubin, “IRS Warns Congress about Failure to Address Alternate Tax,” Bloomberg, December 6, 2012.

[5] Roberton Williams, Eric Toder, Donald Marron, and Hang Nguyen, “Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?”

[6] Some areas exempted from sequestration include grants to states for Medicaid, refundable tax credits, Social Security benefits, and Veterans programs, among others.

[7] Office of Management and Budget, OMB Report Pursuant to the Sequestration Transparency Act of 2012 (P.L. 112-155), September 2012, www.whitehouse.gov/sites/default/files/legacy/foundation/omb/assets/legislative_reports/stareport.pdf.

[8] An additional reduction in payments to physicians in the Medicare program is scheduled to take effect on January 1, 2013. The payment rate for physician services is scheduled to be reduced by 26.5 percent relative to current payment rates as a result of a reimbursement formula known as the Sustainable Growth Rate (SGR). Congress has, every year since 2003 enacted legislation to avert these large, scheduled SGR cuts. To avert a payment cut for 2013 would cost an additional $10.6 billion. To repeal the SGR and simply freeze physician payment rates at the current level would cost $244 billion over the upcoming decade. (CBO, “Medicare’s Payments to Physicians: The Budgetary Impact of Alternative Policies Relative to CBO’s March 2012 Baseline,” July 2012, www.cbo.gov/sites/default/files/legacy/foundation/cbofiles/attachments/43502-SGR%20Options2012.pdf.)

[9] Wall Street Journal, “Economic Forecasting Survey: November, 2012,” http://online.wsj.com/public/resources/documents/info-flash08.html?project=EFORECAST07.

[10] Bank of America, “The Cliff, the Economy and Capital Markets,” October 17, 2012, 2, www.washingtonpost.com/r/2010-2019/WashingtonPost/2012/10/19/National-Economy/Graphics/BofAML%20Fiscal%20Cliff%2017Oct12.pdf.

[11] Ibid.

[12] International Monetary Fund, “Coping with High Debt and Sluggish Growth,” World Economic Outlook, October 2012, www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdf.

[13] Ben S. Bernanke, “The Economic Recovery and Economic Policy” (speech at New York Economic Club), November 20, 2012, www.federalreserve.gov/newsevents/speech/bernanke20121120a.htm.

[14] CBO, “An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022,” August 2012, 22, www.cbo.gov/sites/default/files/legacy/foundation/cbofiles/attachments/43539-08-22-2012-Update_One-Col.pdf.

[15] Ibid., 30.

[16] Ibid., 22

[17] Ibid., “Summary Table 2. CBO’s Economic Projections for Calendar Years 2012 to 2022,” 52.

[18] Roberton Williams, Eric Toder, Donald Marron, and Hang Nguyen, “Toppling Off the Fiscal Cliff: Whose Taxes Rise and How Much?”

[19] This should not be confused with the debate about statutory tax rates. As Alan Viard and I described recently, “Lowering statutory tax rates while broadening the income tax base generally does not reduce work disincentives because it leaves the relevant effective tax rates unchanged.” (Alex M. Brill and Alan D. Viard, “The Benefits and Limitations of Income Tax Reform,” AEI Tax Policy Outlook, no. 2, September 2011, www.aei.org/files/2011/09/27/TPO-Sept-2011.pdf.)

[20] See, for example, Edward C. Prescott, “Nobel Lecture: The Transformation of Macroeconomic Policy and Research,” Journal of Political Economy 114, no. 2 (2006).

[21] Robert McClelland and Shannon Mok, “A Review of Recent Research on Labor Supply Elasticities,” Congressional Budget Office Working Paper 2012-12, October 2012, www.cbo.gov/publication/43675.

[22] Alex Brill and Alan D. Viard, “Warning: Obama Proposes Tripling Dividend Tax Rate,” RealClearMarkets, March 7, 2012, www.realclearmarkets.com/articles/2012/03/07/obama_proposes_tripling_dividend_tax_rate_99553.html.

[23] The 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, 2, 10, www.socialsecurity.gov/oact/tr/2012/tr2012.pdf.

[24] Ibid., 3.

[25] Ibid., 4.

[26] Ibid., 3.

[27] Ibid., 12.

[28]  CBO, “The 2012 Long-Term Projections for Social Security: Additional Information,” October 2012, 15, www.cbo.gov/sites/default/files/legacy/foundation/cbofiles/attachments/43648-SocialSecurity.pdf.

[29] The 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 6, www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2012.pdf.

[30] Ibid., 2.

[31] Ibid., 48.

[32] Ibid., 4–5.

[33] Ibid., 5.

[34] Andrew G. Biggs, “The Distributional Consequences of a ‘No-Action’ Scenario,” U.S. Social Security Administration Policy Brief No. 2004-01 (February 2004), www.ssa.gov/policy/docs/policybriefs/pb2004-01.html.

[35] Patricia A. Davis, “Medicare: History of Insolvency Projections,” Congressional Research Service Report RS20946, June 11, 2012, www.fas.org/sgp/crs/misc/RS20946.pdf.

[36] Patricia A. Davis, “Medicare Financing,” Congressional Research Service Report R41436, June 11, 2012, 5, www.fas.org/sgp/crs/misc/R41436.pdf.

[37] Ibid., 17.

[38] Patricia P. Martin and David A. Weaver, “Social Security: A Program and Policy History,” Social Security Bulletin 66, no. 1 (2005), www.socialsecurity.gov/policy/docs/ssb/v66n1/v66n1p1.html.

[39] Mike Dorning and Richard Rubin, “Durbin Urges Plan to Delay Fiscal Cliff 6 Months with Savings,” Bloomberg, September 6, 2012.

[40] Carmen M. Reinhart and Kenneth S. Rogoff, “Growth in a Time of Debt,” NBER Working Paper No. 15639, January 2010.

[41] Matt Phillips, “The U.S. Debt Load: Big and Cheap,” WSJ Blog “MarketBeat,” July 25, 2012, http://blogs.wsj.com/marketbeat/2012/07/25/the-u-s-debt-load-big-and-cheap.

[42] Aspen Gorry and Matthew Jensen, “A Simple Measure of the Distributional Burden of Debt Accumulation,” AEI Economic Policy Studies Working Paper 2012-04, October 1, 2012, 13, www.aei.org/files/2012/10/01/-a-simple-measure-of-the-distributional-burden-of-debt-accumulation_210316287852.pdf.

[43] The 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, 9.