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The Budget and Entitlements:
Time to Take Action
Stuart Butler
The Heritage Foundation
Iowa City, Iowa
December 3, 2007
25%
Entitlements will crowd out everything else and collide with historical
level of taxes
20%
Historical Level of Tax
Revenues
15%
Percent of GDP
Social Security
Medicaid
10%
5%
Medicare
0%
1965
1975
1985
1995
2005
2015
2025
Source: Congressional Budget Office; 2007 Social Security and Medicare Trustees Reports.
2035
2045
Projected Federal Tax Revenue for Four Tax Policy Scenarios
Percentage of GDP
30%
Balanced Budget
w/o policy changes
25%
Congress Does
Nothing
('01 and '03 Cuts Expire)
Highest Tax Burden
in History, 20.5% 2007
'01 and '03 Tax Cuts
Extended
20%
AMT Fix and Tax Cuts
Extended
Historical
Average Tax
Burden, 18.3%
15%
1995
2005
2015
2025
2035
2045
Source: CBO Long-Term Budget Outlook (2005); Budget and Economic Outlook (2007); Heritage Foundation calculations
What does this mean for projected tax rates?
60%
60%
43%
35%
35%
2050
2050
25%
2050
17%
10%
2005
2050
2005
2005
2005
Lowest Bracket
Middle Bracket
Highest Bracket
Source: Congressional Budget Office; (assumes healthcare costs grow 1% faster than GDP)
Corporate Taxes
Time to Rethink Retirement
Entitlements
• Fix the way Washington spends your money
– Show long-term obligations in the annual federal budget
– Require an explicit vote to raise obligations
– Transform entitlements into 30-year budgeted programs, weighed
against other needs
• Make retirement programs fair but affordable
– Strengthen guarantees for modest income Americans
– Income-adjust all Medicare and Social Security benefits
– Raise the age for early/normal retirement benefits
• Encourage more savings/insurance for middle-income
workers