Federal Budget Cuts Social Security and Medicare by $56 Billion in 2012

Of these, reforms to Medicare ($21.7 billion in savings by 2012) and the President’s Personal Savings plan ($29 billion in savings by 2012) are the largest. Although this is a lot of money, it is still only 3% of spending, and so won't impact the U.S. economy at all.

Long-term, however, the impact of doing nothing about these burgeoning unfunded mandates will be huge. The first Baby-Boomer turns 62 this year, becoming eligible for Social Security benefits. By 2025, those aged 65+ will comprise 20% of the population.

As Boomers leave the work-force and apply for benefits, three things will happen:

1. The labor force will stop growing, providing less payroll taxes to fund Social Security.
2. GDP will decline to less than 2%, thanks to fewer workers.
3. By 2040, the Social Security Trust Fund goes bankrupt.