ABSTRACT
The Social Security Administration (SSA) calculates a fourth, "pessimistic" scenario, presumably based on worst-case assumptions, but which in certain respects posits more optimistic developments than any prudent reason to expect. Despite the mood of "fiscal austerity" in Washington, the likelihood of major expansions in Medicare over the next several years renders this assumption implausible even for entitlements. Because a higher real interest rate makes the trust funds more solvent, the SSA considers it part of a more "optimistic" scenario. State and local governments face the same demographic forces closing in on their own underfunded pension plans and the same health-cost forces pushing up their half of the total Medicaid budget. The certainty of major expansions, given the June 1988 passage of the "catastrophic protection" benefit addition to Medicare. Even where they are wholly or partially exempt from income tax, some share of the benefits are recovered in sales or value-added consumption taxes.
