MEDICARE FROM THE PERSPECTIVE OF GENERATIONAL ACCOUNTING: The Method of Generational Accounting 6

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Government assets do not include the value of the government’s existing infrastructure, such as parks. Including such assets would have no impact on the estimated fiscal burden facing future generations because including these assets would require adding to the projected flow of government purchases an offsetting flow of imputed rent on the government’s existing infrastructure.

Aggregate taxes and transfer payments reported for the government sector in the National Income and Product Accounts are each broken down into several categories. Our general rule regarding tax incidence is to assume that taxes are borne by those paying the taxes, when the taxes are paid: income taxes on income, consumption taxes on consumers, and property taxes on property owners. There are two exceptions here, both of which involve capital income taxes. First, we distinguish between marginal and inframarginal capital income taxes. Infra-marginal capital income taxes are distributed to existing wealth holders, whereas marginal capital income taxes are based on future projected wealth holdings. Second, in the case of small open economies, marginal corporate income taxes are assumed to be borne by (and are therefore allocated to) labor. other

The typical method used to project the average values of particular taxes and transfer payments by age and sex starts with government forecasts of the aggregate amounts of each type of tax (e.g., payroll) and transfer payment (e.g., welfare benefits) in future years. These aggregate amounts are then distributed by age and sex based on cross-section relative age-tax and age-transfer profiles derived from cross-section micro data sets. For years beyond those for which government forecasts are available, age- and sex-specific average tax and transfer amounts are assumed to equal those for the latest year for which forecasts are available, with an adjustment for growth.