Seniors’ Benefits Unfair to Young, Tax Group Says : Entitlements: Study warns that unless changes are made in Social Security, Medicare, workers face huge tax burden next century.

Federal entitlement programs for older citizens, if kept at their present funding levels, will have “catastrophic consequences” on the incomes and living standards of American workers in the next century, the National Taxpayers Union said Friday.

Releasing a study that it said was based on the government’s own economic projections, the respected “taxpayers’ lobby” sounded a grave warning that Social Security, Medicare and Medicaid for seniors may become too heavy a burden for younger workers to bear unless revisions are made. The organization said it foresees total tax rates as high as 69% for average workers by the year 2040 if these programs continue in their present forms.

The annual cost of Social Security and Medicare as a percentage of workers’ taxable pay will rise from 16.5% last year to between 34% and 55% by the year 2040, the study said. It follows a report by the federal Bipartisan Commission on Entitlements and Tax Reform that reflected congressional indecision on how to deal with the problem.

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The co-chairmen of the commission, Sens. Bob Kerrey (D-Neb.) and John C. Danforth (R-Mo.), earlier this month proposed requiring all workers to open private retirement accounts and gradually raising the age for full Social Security and Medicare benefits to 70. They also suggested cutting Social Security taxes.

However, the 32-member commission, demonstrating the political sensitivity of these issues, failed to agree on a specific plan. Instead, they voted to ask President Clinton and Congress to strive for eventual reforms in the entitlement programs.

Commission members said the central question is whether entitlement spending represents a crisis or simply a problem. At current rates of outflow, these popular programs, when added to interest on the federal debt, would consume all federal tax revenues by the year 2012, with nothing left over for defense, education, job training or anything else, the commission found.

The fiscally conservative taxpayers’ union clearly envisions a crisis.

“The graying of the welfare state is likely to have catastrophic consequences for the after-tax living standards of most working-age Americans,” Neil Howe, the organization’s chief economist, told reporters. “The senior citizens’ benefit programs are not practical, not fair to the younger generation and cannot be sustained into the next century.”

Agreeing substantially with the thesis of the bipartisan commission, the report of the taxpayers’ group said that entitlement benefits next year will amount to 14% of the gross domestic product, rising to 23.5% by the year 2040--nearly what the entire federal government currently spends.

“Meanwhile, total government spending will rise from 34.4% to 43.9% of GDP,” the study said. “To balance the budget, total tax revenue will rise even faster. In fact, it will rise more than twice as much between today and 2040 as it did between 1955 and today.”

These programs are so burdensome to taxpayers, Howe said, that--even with the government’s most optimistic projections--the after-tax income of the average American worker would grow by only $125 a year over the next half century, including adjustments for inflation.

The organization’s study is “the first to challenge the oft-made assertion that rising prosperity will enable future workers to easily afford the exploding costs of future entitlement spending,” Howe said.

“We have based our most important budget policies on nothing more than wishful thinking,” he said.

He said the study was developed from a computer economic model that incorporated all the official assumptions used by the Social Security Administration and the Health Care Finance Administration.