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2007 News Releases
For immediate release:
April 27, 2007
Media contact:
James Hoard
Phone: (214) 922-5307
e-mail: james.hoard@dal.frb.org
Unresolved Budget Issues Could Harm Economy, Warns Dallas
Fed’s Economic Letter
- Entitlement shortfall could threaten U.S. economic
growth
- Unfunded liability for Medicare drug benefit exceeds
Social Security shortfall
- Higher retirement age, lower cost of living adjustments
among solutions
DALLAS—Escalating fiscal
issues impacting the U.S. budget deficit could potentially
threaten the nation’s economic health, according
to the April issue of the Federal Reserve Bank of Dallas’
Economic Letter.
The Economic Letter can
be found at www.dallasfed.org/research/eclett/2007/el0704.html
In “Fiscal Fitness: The
U.S. Budget Deficit’s Uncertain Prospects,”
senior economist Jason Saving explains that while U.S.
budget deficits have been shrinking over the past few
years, surging entitlements—especially the Medicare
drug benefit—pose a serious long-term risk to
the budget and could harm the economy’s growth
rate.
“The unfunded liability
for Medicare Part D alone—the drug benefit that
took effect in January 2006—is greater than the
entire Social Security shortfall,” Saving writes.“Dividing
the $88.2 trillion [total unfunded liability] evenly
among the 300 million people who live in the United
States produces a per-person liability of about $290,000—more
than five times the average household’s annual
income.”
Saving says proposals for a higher
retirement age, lower cost-of-living adjustments and
a more progressive payroll tax could provide some relief
for meeting entitlement obligations; however, he also
points out that policymakers “must be mindful
that some of these avenues will be more harmful to the
economy than others.”
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