The United States of America is in the midst of an enormous demographic and economic transformation; effects are witnessed through decreased labor force participation, stagnant economic growth, and financially strained government programs. Layered within the demographic change is a system morphed through partisan interests and inequitable assumptions. The country’s social insurance programs perpetuate on guarantees that supporters receive similar benefits as needed. Academics and government officials have warned of the coming population wave for decades, yet little action has been taken to mitigate associated problems. Safety nets are critical for developed nations to maintain minimum living standards and some forms are sustainable. U.S. social insurance programs are underfunded by $39.698 trillion dollars, net of assets and future tax revenue, if continued under the current structure. The following research is provided to raise awareness of the existing system’s insolvency, generational inequity, and long-term costs in hope of instigating the necessary discussion of realigning economic, fiscal, and social policies onto a sustainable trajectory.

1.
Crossing
the
U.S.
Policy
Void∗
Aaron
M.
Careaga+
This
Draft:
December
16,
2014
Abstract
The
United
States
of
America
is
in
the
midst
of
an
enormous
demographic
and
economic
transformation;
effects
are
witnessed
through
decreased
labor
force
participation,
stagnant
economic
growth,
and
financially
strained
government
programs.
Layered
within
the
demographic
change
is
a
system
morphed
through
partisan
interests
and
inequitable
assumptions.
The
country’s
social
insurance
programs
perpetuate
on
guarantees
that
supporters
receive
similar
benefits
as
needed.
Academics
and
government
officials
have
warned
of
the
coming
population
wave
for
decades,
yet
little
action
has
been
taken
to
mitigate
associated
problems.
Safety
nets
are
critical
for
developed
nations
to
maintain
minimum
living
standards
and
some
forms
are
sustainable.
U.S.
social
insurance
programs
are
underfunded
by
$39.698
trillion
dollars,
net
of
assets
and
future
tax
revenue,
if
continued
under
the
current
structure.
The
following
research
is
provided
to
raise
awareness
of
the
existing
system’s
insolvency,
generational
inequity,
and
long-­‐term
costs
in
hope
of
instigating
the
necessary
discussion
of
realigning
economic,
fiscal,
and
social
policies
onto
a
sustainable
trajectory.
Keywords:
Social
Insurance;
Aging
Demographics;
United
States;
Fiscal
Policy;
Entitlements;
Health
Care;
Education;
Military;
Infrastructure;
Behavioral
Economics
∗
The
views
and
opinions
expressed
in
this
article
are
those
of
the
author
only,
and
do
not
necessarily
represent
the
views
and
opinions
of
WealthMark
LLC.,
or
any
of
their
affiliates
and
employees.
The
author
makes
no
representation
or
warranty,
either
expressed
or
implied,
as
to
the
accuracy
or
completeness
of
the
information
contained
in
this
article,
nor
is
he
recommending
that
this
article
serve
as
the
basis
for
any
investment
decision—this
article
is
for
information
purposes
only.
I
want
to
thank
Benjamin
Esget
and
Asche
Rider
for
helpful
comments
and
discussion.
+
Research
Analyst,
WealthMark
LLC,
1329
North
State
Street,
Suite
206,
Bellingham,
WA
98225-­‐9998,
aaron@wealthmarkllc.com
(email).

2. 1
Contents
Introduction:
The
Perfect
Storm
o 1.1
Background
o 1.2
Demographics
o 1.3
Fiscal
Environment
2
3
6
10
Structural
Effects
o 2.1
Social
Risks
o National
Defense
o Education
o Health
Care
o Infrastructure
o Social
Welfare
o 2.2
Economic
Risks
o Global
Reserve
Currency
o Capital
Markets
o Consumer
Economic
o Foreign
Direct
Investment
o 2.3
Vested
Interests
17
17
18
19
20
21
22
24
25
27
28
30
Accountability
o 3.1
Social
Policy
o 3.2
Economic
Policy
o 3.3
Tax
Policy
o 3.4
Retirement
Policy
32
32
36
39
42
Resolution
o 4.1
Realigning
Incentives
o 4.2
Crossing
the
Void
o Structural
Reforms
o Support
Growth
Drivers
o Returning
to
the
Roots:
Commonwealth
Mentality
45
46
48
48
52
54
Conclusion:
Starting
the
Journey
56
Appendix
58

3. 2
1.
Introduction:
The
Perfect
Storm
“Those
who
cannot
remember
the
past
are
condemned
to
repeat
it.”
–
Santayana
Social
insurance
programs
are
necessary
pillars
of
modern
society
that
not
only
benefit
recipients,
but
also
the
population
at
large.
Governments
use
these
systems
as
a
throttle
to
mitigate
poverty
and
influence
minimum
living
standards
by
providing
a
safety
net
to
those
who
otherwise
cannot
support
themselves
financially.
At
a
national
level,
it
is
the
responsibility
of
elected
officials
to
allocate
tax
revenue
and
manage
these
programs
in
a
sustainable
manner.
Social
insurance
programs
in
the
United
States
include
Social
Security,
Medicare,
Medicaid,
Veterans
Administration,
federal
employee
and
military
retirement
plans,
unemployment
compensation,
food
stamps,
and
agricultural
related
programs.1
These
are
funded
through
tax
revenue
and
perpetuate
on
the
guarantee
that
contributors
receive
similar
benefits
as
they
qualify.
Changes
in
population
size
across
generations
greatly
influence
a
country’s
overall
productivity
and
social
demands.
When
a
large
percent
of
the
population
is
younger,
healthier,
and
working,
there
is
a
significant
tax
base
to
draw
from
with
lower
demand
on
social
insurance
programs.
When
population
size
fluctuates
between
cohorts
and
relatively
more
individuals
draw
from
the
system,
benefits
can
only
be
funded
through
other
means.
Governments
can
either
increase
tax
rates
to
generate
more
revenue
or
redirect
funds
from
other
programs
and
finance
the
shortfalls
through
deficits,
indirectly
borrowing
money
to
bridge
the
gap.
Increased
borrowing
and
higher
taxes
are
necessary
to
sustain
government
programs
and
social
insurance
benefit
levels
as
entitlement
demand
grows.
This
reality
not
only
favors
older
generations
who
paid
relatively
lower
tax
rates
in
higher
growth
periods
but
leaves
unfunded
legacy
obligations
to
current
and
future
generations
and
further
disincentives
personal
and
professional
growth.
Total
costs
of
U.S.
social
insurance
programs
extend
far
beyond
unfunded
benefit
obligations.
Increasing
tax
rates
or
cutting
benefits
can
be
quantified
with
reasonable
accuracy.
The
economic
drag
from
diverting
discretionary
funding
to
mandatory
programs
inhibits
maintenance
and
improvements
to
fundamental
systems.
Losses
in
economic
competiveness,
deteriorating
infrastructure,
a
failing
education
system,
the
polarization
of
politics,
and
many
other
issues
are
all
indirect
costs.
Even
though
not
all
of
these
can
be
quantified,
evidence
of
the
effects
is
visible
today.
Running
deficits
to
finance
shortfalls
will
continue
to
exacerbate
government
programs
as
compounding
debt
grows
exponentially.
Political
choices
will
also
become
harder
as
the
tug
of
war
between
discretionary
and
non-­‐
discretionary
programs
sculpts
the
future
of
the
country.
Warning
signs
have
sounded
for
decades
but
election
cycles
leave
policy
makers
with
little
courage
to
take
action
or
even
convey
the
severity
to
the
masses.
Remedies
will
not
happen
overnight,
but
action
taken
now
will
prevent
current
and
future
generations
from
major
heartache.
The
following
research
explores
the
historical
foundations
of
social
insurance
programs
to
provide
an
understanding
of
original
structures
and
their
modern
adaptations.
After
this
1
Auburn
University.
“A
Glossary
of
Political
Economy
Terms:
Entitlement
Program.”
Accessed
June
12,
2014.
http://www.auburn.edu/~johnspm/gloss/entitlement_program.

4. 3
background,
fiscal
imbalances
and
political
and
social
drivers
stemming
from
these
programs
will
become
apparent
and
lead
to
a
discussion
of
current
and
forecasted
long-­‐term
effects.
The
scope
of
research
centers
on
the
United
States,
but
successful
and
flawed
international
systems
will
be
examined
to
discover
strengths,
weaknesses,
and
potential
improvements.
In
conclusion,
points
of
resolution
and
courses
of
action
that
can
be
taken
to
realign
the
country’s
unsustainable
fiscal
and
political
trajectory
will
be
reviewed.
1.1
Background
pen·sion·er
(noun)
pen(t)-­‐sh(əә-­‐)nəәr
A
15th
century
word
defined
by
Merriam
Webster
as
a
person
who
receives
or
lives
on
a
pension;
especially:
a
person
who
receives
a
government
pension.
Origins
trace
to
mid
1600
German
widows’
and
teachers’
funds,
established
in
good
faith
to
protect
those
who
could
not
support
themselves.
These
eventually
grew
into
funds
for
veterans,
elderly,
poor,
and
disabled
citizens
who
otherwise
didn’t
have
a
safety
net
to
insulate
against
adverse
financial
shocks.
Individuals
often
supported
each
other
by
living
in
extended
families
and
working
in
agriculture
or
other
craftsmen-­‐type
jobs
prior
to
the
industrial
revolution.
This
structure
began
to
shift
as
new
economic
demands
drove
jobs
to
factories
and
populations
to
major
cities.
Higher
density
societies
demanded
better
health
care
and
public
services
that,
amongst
other
reasons,
drastically
increased
life
expectancies.
The
U.S.
population
age
65
years
and
older
was
over
seven
times
larger
in
1940
relative
to
the
older
group
in
1870,
an
increase
from
1.15
million
to
9.02
million
people.2
Increases
in
longevity
and
population
size
have
supported
the
growth
of
economic
and
government
structures
that
attempt
to
better
mediate
social
demands.
Although
limited
military
pensions
were
started
in
the
late
17th
century
by
English
colonies
in
the
United
States,
widespread
universal
social
insurance
was
not
formed
until
the
early
20th
century.3
The
earliest
pension
programs
were
for
disabled
settlers
who
fought
Native
Americans.
The
country’s
first
pension
law
was
enacted
during
the
American
Revolution
to
promote
military
enlistment,
with
benefits
paid
by
each
state
until
the
U.S.
Constitution
was
put
into
effect
in
1778.
The
Pension
Act
of
1818
reshaped
military
safety
nets
by
extending
coverage
to
all
service
members,
not
only
the
disabled,
and
bestowed
lifetime
benefits.
Various
other
legislation
extended
coverage
and
benefits
to
military
members
and
their
families
throughout
the
Mexican,
Civil,
Indian,
Spanish
American
Wars
and
World
War
I.
But
nonmilitary
citizens
could
not
access
widespread
federal
safety
nets
until
the
1930s.
Everything
changed
when
the
Great
Depression
left
millions
unemployed,
homeless,
and
hungry,
encouraging
both
individuals
and
governments
to
institute
national
programs
that
assured
minimum
levels
of
living
standards.
President
Franklin
D.
Roosevelt
signed
the
Social
Security
Act
into
law
in
1935,
creating
the
Social
Security
Board
that
encompasses
seven
programs.
These
programs
include
old-­‐age
assistance,
federal
old-­‐age
benefits,
unemployment
insurance,
aid
to
dependent
children,
grants
to
states
for
maternal
and
child
welfare,
public
health
work,
and
aid
to
the
blind.
Its
structure
was
established
independent
from
other
government
agencies,
but
2
U.S.
Census
Bureau.
“Historical
Statistics
of
the
United
States:
Colonial
Times
to
1957,
part
1,
series
A
199–134,
p.
15.”
3
U.S.
Department
of
Veterans
Affairs.
“Military
Pension
History.”
Accessed
June
12,
2014.
http://www.va.gov/opa/publications/archives/docs/history_in_brief.pdf.

5. 4
transitioned
into
a
sub-­‐cabinet
agency
in
1939
and
then
regained
independence
in
1995.4
In
description
of
the
Social
Security
Act,
President
Roosevelt
stated
that,
“We
can
never
insure
one
hundred
percent
of
the
population
against
one
hundred
percent
of
the
hazards
and
vicissitudes
of
life,
but
we
have
tried
to
frame
a
law
which
will
give
some
measure
of
protection
to
the
average
citizen
and
to
his
family
against
the
loss
of
a
job
and
against
poverty-­‐ridden
old
age.”
Sustainability
of
this
goal
has
become
questionable
due
to
growing
imbalances
across
program
structures.
Largely
maintained
through
a
payroll
tax
on
the
working
population,
those
who
pay
into
the
fund
are
entitled
to
receive
benefits
after
defined
thresholds
are
met.
Significant
portions
of
Americans
were
excluded
from
social
security
from
the
start.
Minorities,
government
employees,
self-­‐
employed
individuals,
and
those
in
low
and
inconsistent
wage
jobs,
or
who
otherwise
had
employer-­‐based
pensions,
were
excluded.
Most
of
the
unqualified
persons
gained
eligibility
to
participate
as
social
insurance
programs
grew.
Social
Security
was
intended
to
be
a
self-­‐sustaining
advance
funded
system,
but
immediately
transitioned
towards
a
pay
as
you
go
program.
Although
current
policy
is
not
a
pure
budget
neutral
pay
as
you
go
system,
changing
the
structure
allowed
elected
officials
immediate
political
support
by
diverting
funds
earmarked
for
future
retirees
into
current
initiatives
as
they
saw
fit.
An
advance
funded
system
works
like
a
national
savings
account
where
money
deposited
is
only
withdrawn
for
its
intended
purpose.5
Rather,
the
pay
as
you
go
system
lies
at
the
other
end
of
the
spectrum
by
using
current
tax
dollars
to
pay
obligations
on
a
revolving
basis.
With
even
the
slightest
interruption
in
tax
collection
or
miscalculation
of
benefit
levels
the
system
no
longer
balances.
These
programs
were
developed
with
good
intention,
but
held
serious
structural
flaws
that
Government
officials
recognized
from
the
start
based
on
failed
international
systems.
On
November
27,
1944,
Chairman
Arthur
J.
Altmeyer
of
the
Social
Security
Board
warned
the
House
Ways
and
Means
Committee:
In
this
country
we
are
still
in
a
position
to
avoid
these
mistakes
by
getting
clearly
established
now
that
if
our
people
want
social
insurance
they
must
be
willing
to
pay
for
it.
The
time
to
obtain
the
necessary
contributions
is
when
people
are
able
to
pay
for
the
insurance
and
are
willing
to
pay
for
it
because
they
can
be
shown
that
they
are
getting
their
money's
worth.
If
we
should
let
a
situation
develop
whereby
it
eventually
becomes
necessary
to
charge
future
beneficiaries
rates
in
excess
of
the
actuarial
cost
of
the
protection
afforded
them,
we
would
be
guilty
of
gross
inequity
and
gross
financial
mismanagement,
bound
to
imperil
our
social
insurance
system.
Initiating
a
transfer
payment
scheme
with
workers
varying
in
age
and
taxable
income,
and
elder
cohorts
who
never
paid
but
already
qualify
for
benefits,
is
difficult
because
one
cohort
typically
gains
and
policy
adjustments
are
inevitable.
The
social
security
payroll
tax
rate
was
initially
set
at
two
percent
and
was
to
be
split
equally
between
the
employee
and
employer.
The
rate
was
originally
scheduled
to
increase
one
percent
every
three
years
until
it
reached
six
percent
in
1949,
but
Congress
enacted
legislation
preventing
the
increase
until
1960.6
The
following
table
displays
4
U.S.
Social
Security
Administration.
“Development
of
Social
Security
in
America.”
Accessed
June
17,
2014.
http://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p1.html.
5
Ibid
6
Congressional
Research
Service.
“Summary
of
Major
Changes
in
the
Social
Security
Cash
Benefits
Program:
1935-­‐1996.”
Accessed
June
18,
2014.
http://www.ssa.gov/history/pdf/crs9436.pdf.

6. 5
the
varying
tax
rates
across
decades
for
Social
Security's
Old
Age,
Survivors,
and
Disability
Insurance
(OASDI)
program
and
the
Medicare's
Hospital
Insurance
(HI)
program.
*Employer
&
Employee
Combined
Rate
Source:
U.S.
Social
Security
Administration
Tax
rates
are
only
one
variable
in
the
program’s
revenue
equation
as
the
Social
Security
Administration
also
defines
limits
on
the
amount
of
earnings
to
be
taxed.
The
maximum
amount
adjusts
based
on
the
national
average
wage
index,
the
most
recent
average
being
$44,321.67
in
2012.
Ignoring
inconsistencies
in
growth
rates
between
the
national
average
wage
index
and
real
median
household
income
reported
by
the
U.S.
Census
Bureau,
earnings
limits
are
set
for
the
social
security
(OASDI)
payroll
tax.
The
Medicare
(HI)
program
followed
a
similar
structure
until
1993
when
taxable
limits
were
removed.
For
example,
an
individual
earning
$50,000
a
year
in
2014
pays
a
combined
$6,200
in
social
security
tax
and
$1,450
in
Medicare
tax
per
year.
Source:
U.S.
Social
Security
Administration
Earlier
generations
were
subject
to
inconsistently
favorable
taxation
both
in
tax
rate
and
earnings
limit
terms,
which
has
led
to
a
significant
underfunding
of
program
reserves
and
a
mismatch
in
benefit
obligations.
As
Arthur
Altemeyer
recognized
in
the
1940s,
a
sustainable
transfer
payment
scheme
taxes
individuals
while
they
are
still
working
by
matching
current
rates
and
earnings
limits
with
future
benefit
obligations.
For
social
insurance
programs
to
remain
solvent,
funding
assets
and
equity
held
need
to
be
greater
than
or
equal
to
the
liabilities
paid.
As
with
individual
budgets,
federal
finances
must
also
balance:
Year OASDI HI Total OASDI HI Total
1940 2.00% - 2.00% - - -
1950 3.00% - 3.00% - - -
1960 6.00% - 6.00% 4.50% - 4.50%
1970 8.40% 1.20% 9.60% 6.30% 0.60% 6.90%
1980 10.16% 2.10% 12.26% 7.05% 1.05% 8.10%
1990 - Today 12.40% 2.90% 15.30% 12.40% 2.90% 15.30%
Employer & Employee Self-Employed
Social Insurance Payroll Tax Rate History
$0#
$20,000#
$40,000#
$60,000#
$80,000#
$100,000#
$120,000#
1937-50#1955-58#1966-67#
1972#
1974#
1976#
1978#
1980#
1982#
1984#
1986#
1988#
1990#
1992#
1994#
1996#
1998#
2000#
2002#
2004#
2006#
2008#
2010#
2012#
2014#
!Earnings!Limit!
Year!
OASDI!Contribu7on!and!Benefit!Base!

7. 6
Assets
=
Liabilities
+
Equity
Assets
generated
in
the
form
of
tax
revenue
significantly
outpaced
benefit
obligations
leading
to
fiat
equity
reserves
in
the
early
days
of
the
system.
Aging
demographics,
rising
health
care
costs,
benefit
adjustments,
and
decreased
labor
force
participation
(resulting
in
a
lower
taxable
base)
are
driving
program
imbalances
between
revenue
and
obligations
to
unsustainable
levels.
U.S.
financial
accounts
cannot
withstand
the
increases
in
debt
levels
necessary
to
indirectly
cover
the
gap
in
revenue,
nor
can
payroll
taxes
be
raised
beyond
levels
that
disincentives
the
country’s
economic
engine.
An
unbiased
review
of
the
facts
is
critical
to
establish
national
priorities.
1.2
Demographics
Modern
societies
are
continuing
to
learn
how
to
sustain
population
levels
that
have
never
been
seen
before
and
which
are
living
much
longer.
Global
population
is
expected
to
plateau
around
10
billion
people
as
birth
and
mortality
rates
stabilize
at
lower
levels
over
the
next
century.7
Although
fertility
and
mortality
rates
are
declining
across
the
globe,
older
groups
are
increasing
in
size
as
existing
populations
age
transforming
demographic
structures
from
a
pyramid
towards
a
rectangle
age
profile.8
Life
expectancy
in
the
United
States
was
47.3
years
for
a
person
born
in
1900,
68.2
years
for
a
person
born
in
1950,
and
78.7
years
for
a
person
born
in
2010.
Remaining
life
expectancy
at
age
65
has
also
greatly
increased
over
the
past
half-­‐century,
from
13.9
years
in
1965
to
19.1
years
in
2010.9
Both
statistics
are
prime
examples
of
the
increases
in
longevity
due
to
advances
in
health
care
and
social
programs,
yet
over
this
period
the
average
retirement
age
has
remained
largely
unchanged.
Expecting
younger
generations
to
finance
unfunded
retirement
and
health
care
benefits
will
constrain
most
developed
nations
future
prosperity.
Source:
U.S.
Centers
for
Disease
Control
and
Prevention
7
TED.
“Hans
Rosling:
Religions
and
babies.”
Accessed
June
20,
2014.
http://www.ted.com/talks/hans_rosling_religions_and_babies#t-­‐781676.
8
Gates
Foundation.
“2014
Annual
Letter,
Myth
Three”.
Accessed
June
20,
2014.
http://annualletter.gatesfoundation.org/#section=myth-­‐three.
9
U.S.
Centers
for
Disease
Control
and
Prevention.
“2013
Health
Statistics,
Table
18.”
Accessed
June
20,
2014
http://www.cdc.gov/nchs/data/hus/2013/018.pdf.
0"
50,000"
100,000"
150,000"
200,000"
250,000"
300,000"
350,000"
1950" 1960" 1970" 1980" 1990" 2000" 2010"
Popula'on)(in)thousands))
Year)
US)Popula'on)by)Age,)1950)?)2010)
85+"
65-74"years"
55-64"years"
45-54"years"
35-44"years"
25-34"years"
15-24"years"
5-14"years"
1-4"years"
Under"1"year"

8. 7
A
country’s
economic
productivity
is
greatly
influenced
by
each
generation’s
education,
health
care,
and
social
demands
as
they
transition
through
life.
Age
groups
are
classified
to
better
understand
and
track
their
characteristics
across
time.
Recent
cohorts
in
the
United
States
include
the
Lost
Generation
from
1883
to
1900,
the
GI
Generation
from
1901
to
1924,
the
Silent
Generation
from
1925
to
1945,
the
Baby
Boom
Generation
from
1946
to
1964,
Generation
X
from
1965
to
1979,
the
Millennial
Generation
from
1980
to
2001,
and
the
New
Silent
Generation
from
2001
to
the
present.
Current
demographic
and
policy
discussion
revolves
mostly
around
the
Baby
Boom
Generation
because
of
their
influx
in
size
and
overall
influence
held
across
economic,
political,
and
social
dynamics
in
the
United
States.
Increases
in
fertility
rates
after
major
wars
are
common,
but
the
period
following
WWII
was
unique
because
levels
remained
elevated
for
nearly
two
decades
spurring
a
population
wave.
Generation
X,
the
group
between
Baby
Boomers
and
the
Millennial
Generation,
is
smaller
in
size
creating
a
relative
gap
in
the
workforce.
Due
to
a
number
of
factors
ranging
from
the
recent
financial
crisis,
housing
market
collapse,
and
underfunded
retirement
savings,
Baby
Boomers
are
remaining
in
the
workforce
longer
than
previous
groups.
Labor
force
participation
for
the
age
group
55
and
older
has
not
been
at
current
levels
since
the
1960s,
while
participation
amongst
the
core
workforce
peaked
in
1999
and
has
decreased
since.
The
core
workforce
age
25
to
54
also
exhibits
a
higher
unemployment
rate
relative
to
the
older
group
age
55
and
over.10
Older
groups
waiting
to
retire
benefit
social
insurance
programs
through
ongoing
income
taxes
and
delaying
benefits,
but
also
impacts
opportunities
for
younger
portions
of
the
workforce.
Source:
U.S.
Department
of
Labor:
Bureau
of
Labor
Statistics
All
Baby
Boomers
will
be
age
65
or
older
by
2030,
at
which
time
it
is
expected
the
Boomer
cohort
will
comprise
twenty
percent
of
the
population.
American’s
at
age
65
and
older
are
forecasted
to
10
U.S.
Department
of
Labor:
Bureau
of
Labor
Statistics.
“FRED
Unemployment
Rate,
Age
25-­‐54,
Age
55+.”
Accessed
June
20,
2014.
0.0#
10.0#
20.0#
30.0#
40.0#
50.0#
60.0#
70.0#
80.0#
90.0#
1948#
1950#
1952#
1954#
1956#
1958#
1960#
1962#
1964#
1966#
1968#
1970#
1972#
1974#
1976#
1978#
1980#
1982#
1984#
1986#
1988#
1990#
1992#
1994#
1996#
1998#
2000#
2002#
2004#
2006#
2008#
2010#
2012#
2014#
As#%#of#Cohort#
Civilian#Labor#Force#Par6cipa6on#Rate#
25#to#54#years# 55#years#and#over#

9. 8
outnumber
the
population
age
18
and
under
by
2056.11
Permanent
shifts
are
occurring
that
will
influence
not
only
social
insurance
programs,
but
also
many
other
aspects
of
American
business
and
life.
Applying
traditional
logic
to
systems
that
rely
on
a
significant
base
of
young
workers
for
support
will
undoubtedly
be
challenged
in
an
aging
world.
Modern
population
characteristics
are
fairly
predictable
across
time.
Individuals
give
birth
and
those
children
become
adults
twenty
years
later.
Around
the
age
of
forty,
they
fully
transition
into
adulthood
and
a
certain
percent
are
likely
to
have
conceived
children.
About
twenty
years
later,
they
enter
retirement
and
eventually
pass
away
around
the
age
of
eighty.
Dependency
ratios
afford
great
perspective
on
population
structure
over
time
by
comparing
the
dependent
population,
children
under
18
years
old
and
elderly
65
years
or
older,
to
the
working
age
population.
Because
most
government
programs
are
largely
financed
through
payroll
taxes
on
the
working
population,
changes
in
these
ratios
reflect
the
unsustainable
nature
of
their
current
structure.
Youth
dependency
in
the
U.S.
has
relatively
decreased
since
1940,
but
old
age
dependency
continues
to
grow.
Over
the
next
few
decades,
total
dependency
as
a
percent
of
the
workforce
will
near
levels
not
seen
since
the
1960s
and
1970s.
But
during
this
earlier
period
there
were
a
large
group
of
dependent
youth
about
to
enter
the
workforce.
Today
there
is
a
large
group
of
the
workforce
entering
retirement
and
becoming
dependent.
This
shift
conforms
to
the
notion
raised
earlier
of
the
population
rebalancing
from
a
pyramid
shape
to
a
rectangle
age
profile
across
time.
Pyramid
shaped
financing
systems,
where
a
continuously
growing
lower
base
of
supporters
is
needed
to
support
the
top
level
of
beneficiaries,
break
down
under
this
transformation.
Source:
U.S.
Census
Bureau
Aging
demographics
is
also
a
global
issue.
China
and
India
are
the
only
countries
to
exceed
the
United
States
in
population
age
65
and
older
in
size
by
2050.12
This
transformation
over
the
next
half
century
will
not
occur
without
placing
strain
on
governments
and
their
social
insurance
programs.
Even
though
the
number
of
Americans
age
65
years
and
older
will
outnumber
similar
11
U.S.
Census
Bureau.
“2012
National
Population
Projections.”
Accessed
June
25,
2014.
http://www.census.gov/population/projections/data/national/2012.html.
12
U.S.
Census
Bureau.
“An
Aging
Nation:
The
Older
Population
in
the
United
States.”
Accessed
June
25,
2014.
http://www.census.gov/prod/2014pubs/p25-­‐1140.pdf.

10. 9
groups
in
all
other
developed
nations,
as
a
percent
of
the
total
population,
the
U.S.
will
remain
younger
than
much
of
Europe,
Canada,
Japan,
and
Russia.
Source:
U.S.
Census
Bureau
Immigration
is
another
force
transforming
the
U.S.
alongside
aging
demographics.
The
country
is
expected
to
not
only
become
much
older,
but
also
more
racially
and
ethnically
diverse
over
the
coming
decades.
Balancing
differences
in
cohort
size
across
generations
will
provide
greater
resources
to
sustain
transfer
schemes
over
the
long-­‐term.
But
short
to
intermediate
challenges
facing
social
insurance
systems
resulting
from
fluctuating
group
sizes
and
an
inconsistent
structure
threaten
future
prosperity.

11. 10
1.3
Fiscal
Environment
Federal
government
spending
has
changed
greatly
over
the
United
States
history.
WWI
and
WWII
caused
significant
amounts
of
revenue
to
be
directed
towards
national
defense
programs
but
this
trend
returned
to
normal
levels
after
wartime.
To
facilitate
the
analysis
and
better
understand
variations
in
federal
expenditures
over
time,
government
programs
will
be
classified
into
four
major
categories:
entitlements,
national
defense,
infrastructure
and
services,
and
net
interest.
Entitlements
include
all
social
insurance
and
health
care
programs,
veteran’s
benefits,
unemployment
compensation,
job
training,
and
related
costs.
National
defense
includes
military
expenditures
such
as
maintenance
of
the
Air
Force
and
Coast
Guard.
Net
interest
covers
the
ongoing
and
legacy
financing
costs
resulting
from
national
deficits.
Infrastructure
and
services
include
transportation
and
agriculture
programs,
federal
employee
compensation,
science
and
technology
programs,
the
judicial
system,
and
all
other
discretionary
spending.
These
categories
are
graphed
as
a
percent
of
GDP
below
to
not
only
visualize
how
tax
dollars
are
spent
but
also
to
display
the
changes
over
time
relative
to
U.S.
productivity.
Source:
The
White
House
Office
of
Management
and
Budget
The
government
has
spent
a
majority
of
tax
revenue
on
national
defense
until
the
1970s
after
which
entitlement
expenditures
overtook
all
other
programs.
The
traditional
function
of
government
is
often
thought
as
maintaining
the
nations
infrastructure,
overseeing
the
judicial
system,
providing
national
defense,
supporting
science
and
technology,
and
guiding
the
education
system.
Yet
the
largest
portion
of
tax
revenue
is
directed
towards
the
entitlement
system.
Because
entitlements
are
politically
untouchable,
it’s
easy
to
see
how
other
federal
programs
are
stagnating
relative
to
international
standards.
0%#
5%#
10%#
15%#
20%#
25%#
30%#
35%#
40%#
45%#
1940#1942#1944#1946#1948#1950#1952#1954#1956#1958#1960#1962#1964#1966#1968#1970#1972#1974#1976#1977#1979#1981#1983#1985#1987#1989#1991#1993#1995#1997#1999#2001#2003#2005#2007#2009#2011#2013#
2015#es/m
ate#
2017#es/m
ate#
2019#es/m
ate#
Outlays(as(%(of(GDP(
Federal(Government(Spending(by(Program(
En/tlements# Na/onal#Defense# Infrastructure#&#Services# Net#Interest#

12. 11
Government
revenue
is
derived
from
taxes
on
individual
income,
payroll,
corporate
income,
excise,
and
other
activities.
Individual
income
taxes
are
the
main
source
of
revenue
that
has
produced
nearly
half
of
all
government
receipts
over
the
past
half
century.
Payroll
taxes
are
the
second
largest
driver
of
revenue
for
the
government,
increasing
from
about
ten
percent
in
the
1950s
to
about
forty
percent
of
total
revenue
in
recent
years.
Corporate
income
taxes
and
excise
taxes
have
both
dropped
significantly
over
this
period.
As
exhibited
in
the
graph
below,
a
growing
and
prosperous
workforce
is
critical
to
maintaining
the
tax
base
necessary
to
support
most
federal
programs.
Source:
The
White
House
Office
of
Management
and
Budget
As
individual
income
and
payroll
taxes
are
the
largest
drivers
of
government
revenue,
the
workforce
is
held
responsible
for
the
unsustainable
costs
of
social
insurance
and
other
government
systems
unless
their
funding
structure
is
reformed.
Large
groups
of
the
population
are
disconnected
from
the
true
cost
of
these
programs
and
at
the
same
time
inequitably
benefiting.
It
is
becoming
politically
impossible
to
address
this
fact
and
will
intensify
if
responsibility
is
not
shared
across
the
country’s
elected
representatives.
The
U.S.
President
submits
an
annual
budget
proposal
that
reviews
the
current
state
of
federal
programs
and
compiles
historic
and
forward
looking
financial
activity.
The
budget
proposal
is
a
collection
of
analysis
issued
by
The
Office
of
Management
and
Budget
and
other
agencies.
Congress
either
accepts
or
rejects
the
President’s
budget
and,
if
accepted,
it
is
enacted
into
law.
Federal
budgets
are
unique
because
they
are
compiled
on
a
cash
basis,
only
reflecting
income
and
expenditures
that
have
occurred.
In
direct
comparison,
U.S.
regulatory
bodies
require
private
sector
businesses
to
report
on
an
accrual
basis.
Accrual
accounting
is
considered
a
more
accurate
representation
of
complex
entities
financial
health
because
it
includes
reasonably
estimated
future
income
and
obligations.
Although
the
government
is
obligated
to
maintain
federal
programs,
reasonably
accurate
unfunded
social
insurance
obligations
are
not
reflected
on
the
annual
0.0#
5.0#
10.0#
15.0#
20.0#
25.0#
1934# 1939# 1944# 1949# 1954# 1959# 1964# 1969# 1974# 1978# 1983# 1988# 1993# 1998# 2003# 2008# 2013# 2018#
es/mate#
Receipts(as(%(of(GDP(
Sources(of(Federal(Revenue(
Individual#Income#Taxes# Corpora/on#Income#Taxes# Payroll#Taxes# Excise#Taxes# Other#

13. 12
budget.13
This
leads
to
an
incomplete
perspective
of
the
programs
and
overall
country’s
financial
health.
The
fiscal
year
2015
budget
proposal
shows
that
the
government
expects
to
spend
3,651
billion
dollars,
but
only
collect
3,002
billion
dollars
in
2014.
The
difference
between
receipts
and
outlays
represents
a
649
billion
dollar
deficit.
Although
the
President
expects
deficits
to
decrease
or
stabilize
through
2024,
this
report
does
not
reflect
unfunded
social
insurance
obligations
or
their
indirect
cost
imposed
on
other
government
systems.
Elected
officials
often
use
these
reports
as
a
basis
for
legislative
decisions
and
their
overall
understanding
of
the
country’s
health.
Table
3
–
Presidents
2015
Federal
Budget
In
coordination
with
the
U.S.
Treasury
and
the
Office
of
Management
and
Budget,
the
Government
Accountability
Office
is
required
to
audit
the
country’s
annual
financial
report.
Each
department
includes
a
Management
Discussion
and
Analysis
section
similar
to
corporate
SEC
filings.
In
the
most
recent
audit
of
fiscal
year
2012
and
2013
financial
statements,
both
the
Treasury
Secretary
and
Comptroller
General
of
the
United
States
conveyed
an
urgent
need
for
social
insurance
reform
and
described
the
immediate
threats
facing
the
country
if
action
is
delayed.
Under
the
guidance
of
Secretary
Jacob
Lew,
the
Treasury
department
concedes
in
the
Financial
Report
of
the
United
States
Government:
Persistent
growth
of
health
care
costs
and
the
aging
of
the
population
due
to
the
retirement
of
the
“baby
boom”
generation
and
increasing
longevity
will
make
it
increasingly
difficult
to
fund
critical
social
programs,
including
Medicare,
Medicaid,
and
Social
Security.
Delaying
action
increases
the
magnitude
of
spending
reductions
and/or
revenue
increases
necessary
to
stabilize
the
debt-­‐to-­‐GDP
ratio.
Relative
to
a
reform
that
begins
immediately,
for
example,
it
is
estimated
that
the
magnitude
of
reforms
necessary
to
close
the
75-­‐year
fiscal
gap
is
more
than
20
percent
larger
if
reforms
are
delayed
by
just
ten
years,
and
more
than
50
percent
larger
if
reform
is
delayed
20
years.
13
U.S.
Department
of
the
Treasury.
“Financial
Report
of
the
U.S.
Government,
Management’s
Discussion.”
Accessed
June
26,
2014.
http://fms.treas.gov/frsummary/FR-­‐Summary-­‐2013.pdf.
Source:
The
White
House
Office
of
Management
and
Budget

14. 13
Economic
costs
of
delaying
social
insurance
reform
grows
exponentially
due
to
the
compounding
nature
of
unfunded
current
and
legacy
benefit
obligations.
As
determined
by
the
change
in
average
primary
surplus,
if
reform
occurs
in
2014
social
insurance
programs
will
cost
U.S.
economic
productivity
1.7%
of
GDP
until
2088.
This
increases
to
2.1%
of
GDP
if
reform
is
delayed
ten
years
until
2024
and
to
2.6%
of
GDP
if
reform
is
delayed
thirty
years
until
2034.14
A
longer
delay
in
addressing
the
structural
imbalances
of
critical
programs
that
millions
of
Americans
rely
upon
for
assistance
not
only
threatens
productivity
but
also
the
support
of
other
government
programs
and
the
economic
incentives
for
growth.
All
social
insurance
programs
have
surpassed
peak
funding
levels
and
most
trust
funds
are
paying
benefits
that
exceed
current
tax
revenue,
excluding
interest
on
fund
assets.
Trust
fund
assets
are
forecasted
to
be
exhausted
much
sooner
than
most
Politicians
and
the
American
public
is
aware
of.
Social
Insurance
programs
qualify
benefits
as
obligations
and
not
liabilities
because
current
law
mandates
that
only
the
available
trust
fund
assets
and
incoming
tax
revenue
be
used.
Unless
their
structure
is
reformed,
or
current
laws
are
adapted,
benefits
will
be
cut
to
match
tax
revenue
levels
for
each
period.
The
Disability
Insurance
program
is
in
the
worst
financial
shape
with
its
trust
fund’s
assets
depleted
in
2016.
Source:
Social
Security
and
Medicare
Board
of
Trustees
In
the
Financial
Report
of
the
United
States
Government,
Comptroller
General
Gene
Dodaro
explains:
Over
the
long
term,
the
imbalance
between
spending
and
revenue
that
is
built
into
current
law
and
policy
will
lead
to
continued
growth
of
debt
held
by
the
public
as
a
share
of
GDP.
This
situation—in
which
debt
grows
faster
than
GDP—means
the
current
federal
fiscal
path
is
unsustainable.
Further,
without
legislative
action,
the
Social
Security
Disability
Insurance
Trust
Fund’s
assets
are
projected
to
be
exhausted
in
2016,
at
which
time
the
Social
Security
Administration
would
need
to
reduce
benefits
consistent
with
available
funds.
Financial
oversight
and
federal
management
institutions,
established
to
protect
the
nation
and
its
people,
are
calling
for
reform
yet
neither
the
President
nor
Congress
is
materially
confronting
these
issues.
Millions
of
Americans
are
led
to
believe
systems
they’ve
paid
into
will
provide
support
even
when
the
U.S.
Treasury
and
Comptroller
General,
along
with
numerous
other
government
organizations,
are
warning
of
the
impending
reduction
in
benefit
levels.
Social
insurance
programs
are
underfunded
by
$39.698
trillion
dollars,
net
of
assets
and
future
tax
revenue,
if
continued
under
the
current
structure.
If
another
model
of
social
insurance
were
to
replace
the
existing
model,
either
advance
funded
or
a
separate
financial
form,
the
legacy
costs
and
beneficiary
obligations
remaining
to
be
funded
is
a
staggering
$53.974
trillion
dollars.
Social
Security
expenditures
in
excess
of
future
revenues
increased
9%
year
over
year,
and
will
likely
14
U.S.
Department
of
the
Treasury.
“Financial
Report
of
the
U.S.
Government.”
Figure
3,
page
17.
Accessed
June
26,
2014.
http://fms.treas.gov/frsummary/FR-­‐Summary-­‐2013.pdf.
Key Dates for Trust Funds OASI DI OASDI HI
Year of peak trust fund ratio 2011 2003 2008 2003
First year outgo exceeds income excluding interest 2010 2005 2010 2018
First year outgo exceeds income including interest 2022 2009 2021 2021
Year trust funds are depleted 2035 2016 2033 2026

15. 14
continue
as
program
assumptions
are
revised
and
the
Baby
Boom
cohort
fully
transitions
into
retirement.
Social
insurance
benefits
are
critical
to
maintaining
stability
across
a
large
portion
of
the
population
for
all
countries.
It
is
difficult
to
comprehend
the
magnitude
of
the
unfunded
liabilities
facing
the
United
States
without
context.
For
example,
global
pension
funds
assets
totaled
$31.980
trillion
dollars
in
2013
with
a
mere
$18.9
trillion
held
by
US
pension
funds.15
Net
worth
of
every
households
and
non-­‐profit
organization
in
the
United
States
is
$81.763
trillion
dollars.16
Net
worth
is
the
value
of
country’s
real
assets
(car,
house,
etc.),
savings,
investment
accounts,
and
other
assets
minus
its
debts
like
mortgages,
student
loans,
and
credit
cards.
To
fully
fund
social
insurance
obligations,
in
attempt
to
replace
the
current
unsustainable
system,
would
take
168%
of
global
pension
fund
assets
or
66%
of
US
household
and
nonprofit
wealth.
Social
Insurance
Future
Expenditures
in
Excess
of
Future
Revenues
Source:
U.S.
Department
of
Treasury
A
majority
of
the
unfunded
obligations
can
be
attributed
to
health
care
expenditures
for
retirees,
elderly,
and
the
poor.
Health
care
in
the
United
States
is
multitrillion-­‐dollar
industry
that,
as
a
whole,
charges
far
higher
rates
for
similar
or
relatively
worse
results
when
compared
to
all
other
developed
countries
in
the
world.
Some
argue
that
health
care
expenditures
are
high
because
Americans
have
a
greater
per
capita
income
relative
to
other
developed
countries,
neglecting
the
fact
it
also
has
the
highest
level
of
income
inequality.
Uneven
wealth
distributions
result
in
a
greater
portion
of
the
population
reliant
upon
safety
net
programs
to
subsidize
or
cover
the
costs.
Major
federal
health
programs
in
the
U.S.
include
Medicare,
Medicaid,
CHIP,
TRICARE,
and
Obamacare.
Medicare
is
a
federal
insurance
program
funded
through
payroll
taxes
and
provides
support
for
the
older
population
and
disabled
individuals.
Medicaid
is
a
health
assistance
program
for
low-­‐income
individuals
regardless
of
age.
The
program
is
financed
through
federal,
state,
and
local
taxes,
and
its
structure
varies
by
state.
CHIP
is
also
a
quasi
federal
and
state
health
care
15
Towers
Watson.
“Global
Pensions
Asset
Study
–
2014.”
Accessed
June
26,
2014.
http://www.towerswatson.com/en-­‐US/Insights/IC-­‐
Types/Survey-­‐Research-­‐Results/2014/02/Global-­‐Pensions-­‐Asset-­‐Study-­‐2014.
16
U.S.
Federal
Reserve.
“Economic
Data:
Household
and
Nonprofit
Net
Worth.
Accessed
June
27,
2014.
http://research.stlouisfed.org/fred2/series/TNWBSHNO.
$ %
Open Group (Net):
Social Security (OASDI) (12,294.00)$ (11,278.00)$ 1,016.00$ 9.00%
Medicare (Parts A, B, & D) (27,302.00)$ (27,174.00)$ 128.00$ 0.50%
Other (102.00)$ (102.00)$ -$ 0.00%
Total Social Insurance Expenditures, Net
(Open Group)
Total Social Insurance Expenditures, Net
(Closed Group)
Social Insurance Net Expenditures as a % of Gross Domestic Product (GDP)*
Open Group 2013 2012
Social Security (OASDI) -1.20% -1.20%
Medicare (Parts A, B, & D) -2.90% -3.00%
Other 0.00% 0.00%
Total (Open Group) -4.20% -4.20%
Total (Closed Group) -5.50% -5.60%
(53,974.00)$ (51,604.00)$ 2,370.00$ 4.60%
Dollars in Billions 2013 2012
Increase / (Decrease)
(39,698.00)$ (38,554.00)$ 1,144.00$ 3.00%

16. 15
program
that
provides
insurance
for
children
of
families
who
cannot
afford
private
insurance
but
do
not
qualify
for
Medicaid.
The
federal
government
matches
benefits
that
are
also
determined
by
the
states.
TRICARE
is
the
civilian
health
program
for
service
members,
retirees,
and
their
families
and
is
funded
through
the
Defense
Department.
The
Affordable
Care
Act,
otherwise
known
as
Obamacare,
is
a
federal
mandate
that
all
citizens
hold
insurance
either
through
private
carriers
or
public
programs.
It
created
a
national
insurance
exchange
to
provide
the
uncovered
population
with
insurance,
and
to
shift
other
health
program
costs
in
hope
of
avoiding
their
respective
insolvency.
Subsidies
in
Obamacare
are
funded
through
taxes
on
individuals
and
businesses.
It
is
tough
to
see
how
federal
health
care
spending
is
sustainable
alongside
the
passage
of
a
mandated
national
health
insurance
program.
Similar
to
other
social
insurance
programs,
Obamacare
should
have
been
evenly
implemented
years
ago
when
a
majority
of
current
high
cost
beneficiaries
were
still
working.
This
poses
another
drag
on
the
workforce
and
younger
generations
who
are
left
to
subsidize
health
care
expenses
for
retirees
that
were
never
held
to
such
standard
but
who
now
benefit.
With
the
significant
amount
spent
on
health
care
in
the
United
States
it
should
be
reasonably
expected
that
Americans
are
living
longer
and
are
healthier
as
a
result.
Life
expectancy
is
actually
a
year
less
than
the
OECD
average.17
Because
the
older
group
of
the
population
spends
the
most
on
health
care,
addressing
this
cost
benefit
relationship
is
critical
to
the
future
sustainability
of
social
insurance
programs.
Source:
Organisation
for
Economic
Co-­‐operation
and
Development
Health
care
spending
is
growing
faster
than
most
other
federal
programs
and
the
overall
economy,
a
trend
that
is
expected
to
continue
as
the
population
ages.
The
CBO
projects
that
by
2024
the
U.S.
government
will
spend
a
net
$858
billion
on
Medicare,
$582
billion
on
Medicaid
and
CHIP,
and
$137
billion
on
exchange
subsidies
and
other
items.
Of
the
government
expenditures
net
of
tax
revenue
generated,
sixty
percent
of
federal
health
care
spending
will
only
benefit
the
population
17
Organisation
for
Economic
Co-­‐operation
and
Development.
“Society
at
a
Glance
2014
Highlights:
United
States
OECD
Social
Indicators.”
Accessed
June
30,
2014.
http://www.oecd.org/unitedstates/OECD-­‐SocietyAtaGlance2014-­‐Highlights-­‐UnitedStates.pdf.
8508
5669
5643
5099
4546
4522
4495
4448
4246
4118
4061
3925
3800
3700
3405
3374
3322
3305
3213
3182
3072
3012
2619
2421
2361
2239
2198
1966
1915
1689
1568
1452
1303
977
906
1316
1043
942
432
141
127
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
UnitedStates
Norway
Switzerland
Netherlands
Austria
Canada
Germany
Denmark
Luxembourg
France
Belgium
Sweden
Australia
Ireland
UnitedKingdom
Finland
OECD
Iceland
Japan
NewZealand
Spain
Italy
Portugal
Slovenia
Greece
Israel
Korea
CzechRepublic
SlovakRepublic
Hungary
Chile
Poland
Estonia
Mexico
Turkey
RussianFederation
Brazil
SouthAfrica
China
India
Indonesia
USDPPPs
Health expenditure per capita, 2011 (or nearest year) Private
Public

17. 16
age
65
and
older.18
With
about
one
in
four
Medicare
dollars
spent
during
the
beneficiary’s
final
year
of
life.19
Again,
social
insurance
programs
are
unsustainable
under
their
current
financing
structure
of
taxing
the
working
population
in
an
aging
environment.
America
outspends
most
OECD
countries
on
health
care
per
capita.
In
1970
the
U.S.
was
spending
an
average
of
7.1
percent
of
GDP
on
health
care
while
the
OECD
average
excluding
the
U.S.
and
Italy
was
5
percent
of
GDP.
Forty
years
later,
spending
has
risen
to
18
percent
of
GDP
while
OECD
countries
average
10.6
percent
of
GDP.
Savings
are
estimated
to
be
1.05
trillion
dollars
per
year
if
the
country
matched
average
OECD
spending
on
health
care.20
Addressing
domestic
cost
and
current
benefit
levels
are
necessary
to
realign
social
insurance
programs
onto
a
sustainable
path.
Federal
health
care
spending
has
increased
faster
than
GDP,
and
at
a
pace
consistently
above
OECD
peers,
while
the
taxable
wage
base
supporting
the
social
insurance
system
has
shrunk.
A
trend
largely
driven
by
aging
demographics
(lower
level
of
labor
force
participation)
has
resulted
in
a
smaller
workforce
whose
real
wages
have
stagnated.
Effects
stemming
from
policies
are
visible
across
numerous
aspects
of
society
and
felt
by
all
population
cohorts.
A
national
discussion
is
critical
to
addressing
the
economic
and
fiscal
imbalances
stemming
from
aging
populations.
18
U.S.
Congressional
Budget
Office.
“Shifting
Priorities
in
the
Federal
Budget.”
Slide
19.
Accessed
June
30,
2014.
https://www.cbo.gov/sites/default/files/cbofiles/attachments/45342-­‐StanfordEconomicPolicyResearch.pdf.
19
U.S.
National
Library
of
Medicine.
“Long-­‐Term
Trends
in
Medicare
Payments
in
the
Last
Year
of
Life.”
Accessed
June
30,
2014.
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2838161.
20
The
Brookings
Institute.
“Growth
in
Health
Consumption
and
its
Implications
for
the
Financing
of
the
OASDI
Program:
An
International
Perspective.”
Accessed
July
1,
2014.
http://www.nber.org/programs/ag/rrc/rrc2012/summaries/1.2%20Bosworth,%20Burtless.pdf.

18. 17
2.
Structural
Effects
“Compound
interest
is
the
eighth
wonder
of
the
world.
He
who
understands
it,
earns
it…
he
who
doesn’t…
pays
it.”
–
Einstein
The
disability
insurance
trust
fund
is
forecasted
to
be
exhausted
in
2016,
hospital
insurance
in
2026,
and
the
old
age
and
survivor’s
insurance
in
2035.
Recipients
and
the
population
at
large
will
experience
some
combination
of
forced
reform,
benefit
level
cuts
or
payroll
tax
increases,
if
these
structures
remain
unchanged.
Effects
stemming
from
legacy
and
unfunded
obligations
continue
to
compound
under
the
current
social
insurance
system,
negatively
influencing
the
United
States
economic,
political,
and
social
opportunities.
Mitigating
this
reality
before
action
is
forced
will
lessen
the
burden.
Entitlement
programs
have
surpassed
the
inflection
point
where
benefits
paid
outpace
the
underlying
tax
revenue
generated,
with
obligations
growing
at
a
faster
rate
than
the
economy.
Some
academics
and
investment
professionals
attribute
the
current
environment
as
to
being
“in
the
eye
of
a
storm.”21
Revenue
momentum
under
existing
legislation
supports
forward
movement
over
the
short-­‐term.
But
like
the
roadrunner
continuing
off
a
cliff,
gravity
of
unfunded
obligations
will
exhaust
remaining
fund
assets
and
eventually
catch
monthly
benefit
payments.
Growth
is
the
underlying
driver
of
revenue
for
most
business
and
government
programs.
It
incentivizes
future
generations,
creates
opportunity
for
the
workforce,
and
provides
leaders
with
the
ability
to
meet
overall
populations
needs.
Balancing
current
demands,
while
laying
the
groundwork
for
growth
for
the
next
generation,
is
the
difficult
but
necessary
role
of
contemporary
leaders.
A
lapse
between
focuses
sows
the
seeds
of
instability.
2.1
Social
Risks
Social
insurance
programs
are
considered
to
be
one
of
the
most
successful
government
systems
ever
implemented
in
the
United
States.
A
national
focus
on
old
age
health,
poverty,
and
financial
security
has
supported
many
social
trends
that
are
visible
through
fewer
associated
negative
effects,
while
other
causes
have
suffered
as
priority
is
given
to
these
issues.
It’s
important
to
keep
in
mind
the
second
derivative
impacts
while
considering
the
proceeding
risks.
A
question
posed
by
Hoover
Institute
fellow
Peter
Robinson
in
an
interview
between
Harvard
political
economics
professor
David
Wise
and
Stanford’s
Dean
John
Shoven
is
worth
considering
in
light
of
these
impacts.22
My
next
question
is,
in
general
terms,
how
bad
is
this
for
folks
in
the
next
generation?
But
let
me
get
to
this
question
in
this
way.
There's
an
article
in
the
current
Forbes
magazine
in
which
Peter
Drucker,
the
management
guru,
is
interviewed.
And
Drucker
points
to
a
couple
of
fascinating
population
statistics.
Italy,
which
has
a
population
of
60
million
today,
is
projected
to
go
down
below
40
million
in
2050.
Japan,
which
has
a
population
of
about
125
million,
projected
to
be
cut
in
half
within
a
century
on
current
birthrates.
Interesting?
What's
going
on?
Here's
what
Drucker
says
what's
going
on.
The
main
reason
for
the
decline
in
births
is
the
enormous
burden
on
people
of
working
age
supporting
older
people
in
retirement
who
are
21
Milken
Institute.
“A
Conversation
with
Ken
Griffin
and
Steve
Schwarzman.”
Accessed
July
1,
2014.
http://www.milkeninstitute.org/events/conferences/global-­‐conference/2014/panel-­‐detail/4863.
22
Stanford
University
Hoover
Institute.
“Aging:
From
Baby
Boom
to
Bust.”
Accessed
July
1,
2014.
http://www.hoover.org/research/aging-­‐baby-­‐
boom-­‐bust.

19. 18
hail
and
hearty.
You
cannot
cut
the
social
security
payments
of
older
people
because
that's
the
law,
so
they
cut
where
they
have
control,
which
is
having
babies.
Now
this
is
a
kind
of
Blade
Runner
nightmare
vision
in
which
the
older
people
in
effect
prey
on
the
younger
people.
Give
me
medical
care,
give
me
income.
It's
not
quite
that
bad
in
this
country,
is
it?
Or
is
it?
Individuals
act
out
of
their
own
best
self-­‐interest
in
making
economic
decisions.
Financial
resources
are
managed
prudently
when
the
environment
hardly
supports
living
standards.
Population
growth
through
higher
birth
rates
is
harder
to
achieve
in
economic
stagnation.
Like
much
of
the
developed
world,
China’s
demographic
environment
is
evolving
similar
to
Japan’s
aging
demographics
and
falling
birth
rates.
The
Chinese
government
has
lifted
its
one
child
policy
in
attempt
to
influence
population
growth,
but
less
than
3%
of
the
eligible
parent
base
has
elected
to
have
another
child.
Policy
analysts
observe
that,
“confidence
of
couples
in
their
ability
to
provide
for
a
second
child
may
also
be
waning
as
China’s
economic
growth
slows.”23
Growth
occurs
in
an
environment
that
supports
increased
wealth
and
economic
stability.
Policy
changes
cannot
immediately
reverse
long-­‐term
trends
driving
lower
real
incomes
and
stagnant
economies.
The
following
section
discusses
how
public
policies
on
defense,
education,
health
care,
infrastructure,
and
human
welfare
have
been
indirectly
affected
as
national
priorities
fluctuate
with
the
election
cycle
and
voting
bloc.
With
relatively
less
tax
revenue
and
slower
growth
to
bridge
obligations,
a
conscious
review
of
social,
economic,
and
political
systems
is
necessary
in
influencing
the
country’s
future.
2.1.1
National
Defense
National
security
financing
over
the
United
State’s
history
has
expectedly
increased
in
times
of
war
and
decreased
during
times
of
peace.
But
in
recent
and
forecasted
federal
budgets,
as
exhibited
in
the
following
graph,
spending
on
defense
is
trending
towards
levels
lower
than
the
peace
dividend
period
of
the
1990s.
This
is
thought
to
be
the
result
of
cost
cutting
measures
in
an
attempt
to
slow
the
growth
of
federal
debt
and
spread
tax
revenue
shortfalls
across
all
systems.
Source:
The
White
House
Office
of
Management
and
Budget
23
Bloomberg.
“China
Baby
Boom
Wagers
Go
Bust
on
Child
Cost
Burden.”
Accessed
August
21,
2014.
http://www.bloomberg.com/news/2014-­‐08-­‐
20/china-­‐baby-­‐boom-­‐wagers-­‐go-­‐bust-­‐on-­‐child-­‐cost-­‐burden.html.
0.0%$
2.0%$
4.0%$
6.0%$
8.0%$
10.0%$
12.0%$
14.0%$
16.0%$
1948$1950$1952$1954$1956$1958$1960$1962$1964$1966$1968$1970$1972$1974$1976$1977$1979$1981$1983$1985$1987$1989$1991$1993$1995$1997$1999$2001$2003$2005$2007$2009$2011$2013$
2015$es0m
ate$
2017$es0m
ate$
2019$es0m
ate$
Outlays(as(%(of(GDP(
U.S.(Na3onal(Defense(Spending(

20. 19
Recent
wars
in
the
Middle
East
have
strained
both
national
security
finances
and
public
support
to
raise
taxes
to
increase
program
funding.
Continuous
engagement
in
the
region
over
the
past
decade
has
negatively
influenced
domestic
productivity,
geopolitical
stability,
and
the
international
economy.24
Exhausting
critical
financial
and
political
resources
has
left
the
country
in
a
more
fragile
state
to
address
unforeseen
defense
issues
as
they
might
arise.
Legacy
and
ongoing
costs
of
war,
paired
with
the
impending
strain
on
social
insurance
programs,
should
stand
as
a
warning
to
elected
officials
to
allocate
available
resources
prudently
before
reform
restricts
the
country’s
ability
to
support
domestic
and
international
security.
Although
direct
transfers
cannot
be
made
from
defense
programs
to
social
insurance
because
of
how
the
systems
are
structured,
indirect
costs
of
fiscal
tightening
do
influence
national
priorities.
With
an
increasing
older
age
population
who
are
traditionally
predisposed
to
vote,
a
natural
disconnect
between
certain
government
benefits
and
underlying
costs
exists.
2.1.2
Education
Another
pillar
of
society
influenced
by
competing
federal
interests
is
the
country’s
education
system.
Education
is
financed
primarily
through
local
and
state
taxes
but
is
also
subsidized
by
federal
tax
provisions.
Management
of
the
system
is
left
to
each
state
to
implement,
but
the
federal
government,
overall
population,
and
media
significantly
influence
academic
standards.
The
foundation
of
a
competitive
workforce
and
prosperous
economy
is
directly
affected
by
the
economic,
social,
and
political
support
given
to
education
programs.
Once
a
leader
in
K-­‐12
and
higher
education,
U.S.
standards
across
subjects
such
as
math,
reading,
and
science
have
lagged
international
peers
for
decades.
A
recent
Organization
for
Economic
Co-­‐
operation
and
Development
(OECD)
study
found
the
country
spends
significantly
more
per
student,
yet
ranks
17th
in
reading
and
27th
in
math
skills
relative
to
all
other
developed
nations.25
Overarching
ideologies
around
learning
in
the
United
States
have
changed
very
little
in
decades.
Applying
the
same
structure
that
led
global
education
standards
nearly
a
century
ago
in
the
current
economic
environment
is
obviously
failing.
Higher
education
is
slightly
better
than
elementary
in
terms
of
efficiency,
but
some
aspects
do
inhibit
the
competiveness
of
future
generations.
A
majority
of
the
world’s
top
universities
can
be
found
in
the
U.S.
yet
college
graduates
age
sixteen
to
twenty-­‐nine,
that
hold
a
bachelor’s
degree,
rank
below
the
OECD
average
in
math
skills.26
27
Without
a
certain
level
of
technical
ability,
the
domestic
workforce
cannot
compete
with
global
peers
even
if
a
relatively
significant
portion
has
attained
secondary
degrees.
Tuition
inflation
has
also
impacted
opportunities
for
current
and
future
generations.
The
cost
of
higher
education
has
outpaced
the
cost
of
books
and
supplies,
housing
prices,
the
consumer
price
index,
and
average
hourly
wages
since
the
mid
1970s.
To
advance
in
a
competitive
and
recently
depressed
job
market,
many
students
are
forced
to
take
on
debt.
This
restricts
the
flexibility
and
24
Stiglitz,
Joseph
E.,
and
Linda
J.
Bilmes.
"Estimating
the
Costs
of
War:
Methodological
Issues,
with
Applications
to
Iraq
and
Afghanistan."
Accessed
July
10,
2014.
http://www.socsci.uci.edu/~mrgarfin/OUP/papers/Bilmes.pdf.
25
Organisation
for
Economic
Co-­‐operation
and
Development.
“PSIA
U.S.
Education
Study
2012.”
Accessed
July
10,
2014.
http://www.oecd.org/pisa/keyfindings/PISA-­‐2012-­‐results-­‐US.pdf.
26
The
New
York
Times:
The
Upshot.
“Americans
Think
We
Have
the
World’s
Best
Colleges.
We
Don’t.”
Accessed
July
12,
2014.
http://www.nytimes.com/2014/06/29/upshot/americans-­‐think-­‐we-­‐have-­‐the-­‐worlds-­‐best-­‐colleges-­‐we-­‐dont.html?_r=0.
27
Organisation
for
Economic
Co-­‐operation
and
Development.
“United
States
Adult
skills
(Survey
of
Adult
Skills,
PIAAC).”
Accessed
July
12,
2014.
http://gpseducation.oecd.org/CountryProfile?primaryCountry=USA&treshold=10&topic=AS.

21. 20
entrepreneurialism
of
the
workforce
as
once
an
individual
graduates
they
are
less
likely
to
take
risks
when
debt
must
be
serviced.
Source:
The
Economist
Responsibility
falls
upon
every
citizen
to
support
initiatives
that
improve
education
standards
and
provide
the
skills
necessary
for
meaningful
employment
across
all
trades.
The
U.S.
can
re-­‐establish
a
solid
economic
foundation
by
addressing
shortfalls
in
academic
attainment
and
standards
alongside
the
rapidly
increasing
cost
of
higher
education.
Programs
that
support
growth
in
national
productivity
will
ease
the
financial
burden
across
all
government
programs.
2.1.3
Health
Care
Developed
nations
have
come
to
expect
and
rely
upon
access
to
quality
health
care
at
all
stages
of
life.
As
discussed
earlier,
U.S.
social
insurance
has
provided
the
disabled,
poor,
and
older
age
groups
with
health
care
subsidies
in
hope
of
influencing
minimum
living
standards
across
the
population.
Access
to
health
care
from
entitlement
programs
and
the
Affordable
Care
Act
has
resulted
in
a
majority
of
the
population
holding
some
form
of
insurance.
Even
though
health
care
costs
in
the
United
States
are
significantly
higher
than
most
developed
nations
and
outcomes
in
terms
of
life
expectancy,
infant
mortality,
and
other
indicators
are
generally
worse,
the
goal
of
nearly
universal
coverage
is
being
achieved.28
Similar
to
the
education
system,
applying
traditional
ideologies
to
modern
health
demands
is
proving
inadequate.
Nationalizing
what
many
consider
should
be
entitled
conflicts
with
the
for-­‐
profit
structure
of
the
current
health
care
system.
Overtreatment
of
symptoms
and
unnecessary
procedures
drive
provider
revenue
and
increase
costs
to
the
consumer
and
general
public.
Preventative
measures
on
risks
such
as
diet,
exercise,
and
mental
health
gather
negligible
support
on
the
health
care
scene.
Seventy-­‐five
percent
of
national
health
care
spending
comes
from
chronic
disease.
Yet,
the
World
Health
Organization
estimates
that
if
preventative
measures
were
taken,
eighty
percent
of
heart
disease,
stroke,
and
type
two
diabetes
cases
would
be
prevented
and
more
than
forty
percent
of
28
U.S.
Department
of
Health
and
Human
Services.
“National
Prevention
Strategy.”
Accessed
July
12,
2014.
http://www.surgeongeneral.gov/initiatives/prevention/strategy/report.pdf.

22. 21
cancer
cases
would
be
prevented.29
Even
if
preventative
medical
care
costs
as
much
as
treatment,
the
country
would
be
healthier
and
more
productive
by
supporting
offensive
and
defensive
health
policies.
Government,
industry,
and
society
need
to
address
the
unsustainable
nature
of
the
current
system
to
be
able
to
provide
adequate
universal
health
care.
Because
entitlement
revenue
is
redistributed
from
payroll
taxes
to
qualified
recipients,
relying
predominantly
on
the
workforce
to
support
these
indifferences
is
inequitable
in
an
aging
society.
Mandated
health
insurance
spreads
the
cost
burden
from
unhealthy
older
groups
to
healthy
younger
groups.
Both
structures
negatively
impact
the
more
competitive
and
already
less
productive
economy.
Bridging
this
reality
could
prove
arduous
because
of
the
competing
interests
and
lobbying
reach
of
big
health
and
the
aging
population.
Priority
needs
to
be
given
not
only
to
access
to
universal
health
care
but
also
to
addressing
inadequacies
of
the
current
system.
2.1.4
Infrastructure
Infrastructure
is
another
luxury
that
modern
societies
have
come
to
expect.
But
with
fewer
tax
dollars
to
support
competing
demands,
American
infrastructure
has
fallen
as
a
national
priority.
Resulting
out
of
military
necessity
and
existing
structural
disparities
following
World
War
I
and
II,
the
interstate
highway
system
connects
over
forty-­‐seven
thousand
miles
and
took
thirty-­‐five
years
to
build.
A
majority
of
financing
to
build
and
maintain
the
system
is
derived
from
fuel
taxes
in
addition
to
bridge
and
highway
tolls.
Expenditures
on
maintenance
and
improvements
relative
to
usage
have
fallen
in
recent
years,
threatening
the
system’s
efficiency
and
safety.
President
Obama
proposed
creating
the
National
Infrastructure
Bank
(NIB)
to
support
the
nation’s
highways,
bridges,
and
other
public
infrastructure.
This
bank
was
proposed
to
lend
half
of
the
total
cost
of
a
publicly
beneficial
and
revenue
generating
infrastructure
project.
Local
governments
and
private
investors
are
expected
to
cover
the
remaining
financing.
The
US
Department
of
Agriculture
announced
a
related
program,
the
$10
billion
dollar
Rural
Infrastructure
Opportunity
Fund,
to
connect
institutional
investors
with
wastewater
projects,
energy
development,
and
infrastructure
development
in
rural
areas.
Whether
the
NIB
or
other
programs
are
enacted,
continued
support
is
necessary
to
realign
infrastructure
as
a
national
priority.
As
some
existing
infrastructure
has
already
failed,
like
the
Skagit
River
Bridge
in
Washington
State,
the
majority
of
United
States
infrastructure
is
in
need
of
additional
maintenance
or
repair.
The
American
Society
of
Civil
Engineers
estimates
that
one
in
every
nine
bridges
in
the
country
are
structurally
deficient
and
about
$76
billion
dollars
in
additional
funding
is
needed
to
repair
the
bridges
alone.30
State
and
federal
programs
to
support
such
activity
are
strained.
Rethinking
the
structure
of
domestic
public
investment
needs
to
be
addressed
if
traditional
tax
revenues
continue
to
fall
short
of
system
needs.
29
National
Center
for
Chronic
Disease
Prevention.
“The
Power
of
Prevention:
Chronic
Disease.”
Accessed
July
20,
2014.
http://www.cdc.gov/chronicdisease/pdf/2009-­‐power-­‐of-­‐prevention.pdf.
30
American
Society
of
Civil
Engineers.
“2013
Report
Card
for
American
Infrastructure.”
Accessed
July
20,
2014.
http://www.infrastructurereportcard.org/a/#p/bridges/overview.