Table 4 examines the permanent cuts in Medicare benefits that could be used to achieve generational balance by which we mean equalizing the lifetime net tax rates of current newborns and future generations. The table considers baseline (current) policy as well as three other policies: a) limiting government purchases after the turn of the century to the same real amount as that spent in 2000, b) reducing the annual growth rate of Medicare and Medicaid expenditures by 2 percentage points between now and 2003 and permitting real expenditures per beneficiary on these programs to grow after 2003 at the growth rate of labor productivity, and c) simultaneously engaging in policies a) and b). itat on
|Policy Begins in 1998||Baseline||PolicyLimit Gov. Limit Medical Purchases Expenditures||Limit Gov.Purchases and Medical Expenditures|
|Initial dollar cut||239.0||185.7||108.9||39.1|
|Equalized Net Tax Rate||30.1||29.8||31.4||31.1|
|Policy Begins in 2003|
|Initial dollar cut||299.1||232.4||141.9||51.0|
|Equalized Net Tax Rate||30.3||29.9||31.5||31.1|
|Policy Begins in 2016||■|
|Initial dollar cut||828.5||643.7||413.1||148.4|
|Equalized Net Tax Rate||31.0||30.5||31.8||31.2|
The table also considers initiating the cuts in Medicare at three different dates: 1998, 2003, and 2016.
The table shows the requisite permanent percentage cut in Medicare benefits needed to achieve generational balance given the policy in place and the start date for the cut. It also shows the absolute Medicare spending cut in billions of 1995 dollars in the first year the policy is initiated. Finally, the table shows the common lifetime net tax rate that will face future and newborn generations once the specified policy is enacted.