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Contending with the looming "entitlement crisis"

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WASHINGTON, D.C. – Maybe the Tea Party movement is on to something, concedes research expert Michael Tanner, senior fellow at the Cato Institute–especially when it comes to using future money for health care programs.

Tanner, keynote speaker at this week’s LIMRA/LOMA/SOA Retirement Industry Conference in Washington, D.C., says that the rag-tag grassroots organization has at least helped focus attention on a major issue: There is absolutely no way that the United States can, in the long term, financially support entitlement programs including Social Security, Medicare and Medicaid (not to mention the whole new wave of provisions in the recent health care package).

“Traditionally, government programs consumed about 21 percent of our gross domestic product, but right now, it’s closer to 28 percent … and if we keep it up, total federal spending will amount to 65 percent of our entire GDP by 2080,” Tanner says. “Clearly this is not sustainable,” he adds.

And while more personal and corporate taxes might provide a solution, Tanner says that generational factors–a healthy population that keeps living longer, as well as the rapid drop-off in birth rate, meaning less future workers to feed tax coffers–means that even an impossible personal tax rate of 88 percent would do nothing to keep up with the programs’ costs.

Tanner says solving the “entitlement crisis” will be one of America’s most challenging issues, but says the basic solutions mirror three options floated a few years ago by then-President Bill Clinton: reduce benefits, allow individuals and systems to invest privately and … again, raise taxes.

Private, individual investment, Tanner says, might be the biggest key to survival, as well as improved defined contribution plans, personal accounts and long-term individual insurance contracts.

“Sadly, we’re not seeing a great deal of courage when it comes to talking about any of this in Washington, among either party.”

Andy Stonehouse is managing editor for Senior Market Advisor.


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