A Tax Lawyer's Observations on Scary Numbers, Politics, and Irresponsibility: A Commentary on Shaviro's Reckless Disregard

Abstract

The fiscal gap is filled by the issuance of government debt, au increasing portion of which is held by foreigners. Although foreigners still seem willing to absorb large amounts of U.S. debt, international organizations express concern over U.S. budgetary deficits. A significant source of the fiscal gap is the Social Security system. Two changes that might resolve Social Security funding issues include raising the minimum age to receive full retirement benefits to seventy years old and raising the taxable wage base. Politically, however, adopting either of these changes soon seems impossible. In addition, current Medicare costs will exceed current tax revenue in 2004 for the first time in recent history. Congress could bring long-term expenditures and revenues into balance by, for example, immediately raising the tax rate from 2.9% to 6.02% or immediately reducing benefits by 48%. If Congress defers taking action to address the problem, however, the rate increase or benefit reduction will need to be more substantial.