The Outlook for Social Security and Medicare Is Grim, Will Congress Continue to Ignore This Crisis? by Gregory Hilton–
Last week the Social Security and Medicare Trustees released their 2009 annual report and it contains plenty of grim news. According to the Trustees, the outlook for both programs is dire for a variety of reasons. The annual Social Security surpluses will disappear for good in 2016, and the system will then start paying out more every year than it takes in. Lawmakers will then have to raise taxes or slash spending on other federal programs to pay benefits.
In releasing the report Treasury Secretary Timothy Geithner said, “The longer we wait to address the long-term solvency of Medicare and Social Security, the sooner those challenges will be upon us and the harder the options will be. . . . The President explicitly rejects the notion that Social Security is untouchable politically, and instead believes there is opportunity for a new consensus on Social Security reform.” For many years George W. Bush tried to find that consensus. He devoted the first 60 days of 2005 to Social Security and Medicare reform, but no progress was made. President Obama can not meet with a similar fate because the consequences are so serious.
Spending on Social Security and Medicare totaled more than $1 trillion last year, accounting for more than one-third of the federal budget. Since 2004 the Trustees have been advocating an immediate increase in payroll taxes by 2.02 percentage points. The 2009 Trustees Report says that in “net present value,” Social Security has promised to pay out $7.7 trillion more in benefits than it will receive in taxes. “Net present value” means Congress would have to invest $7.7 trillion today to have enough money to pay all of Social Security’s promised benefits between 2016 and 2083.
That’s more than twice what the federal government will spend this year on everything it buys, and this investment would be on top of the funding Social Security will collect through payroll taxes. The Medicare situation is far more serious because future obligations exceed dedicated taxes by $89 trillion. Medicare’s liability is about 5 1/2 times the size of Social Security’s ($18 trillion) and about six times the size of the entire U.S. economy. An excellent editorial on the crisis in both Social Security and Medicare appeared in last week’s Washington Post:
You’d have to have been living under a rock to be surprised by this week’s news from the Social Security and Medicare trustees that the programs are in trouble. In a nutshell: The U.S. population is aging, health-care costs are spiraling upward and neither program has the money to cover promised benefits. In addition, politicians have known this for many years, and yet no progress has been made in fixing the programs.
The deteriorating economy has made things worse. The date when the Social Security trust fund will start running deficits has moved closer by a year, to 2016, and the date of trust fund depletion has advanced by four years, to 2037. The Medicare hospital insurance trust fund is already running a deficit and will be exhausted by 2017. Furthermore, the size of the Social Security surpluses has shrunk, posing a problem for the government since it relies on these funds to help plug its deficits. Over the next seven years, the cumulative surpluses will be $157 billion instead of the previously estimated $454 billion, forcing the cash-strapped feds to borrow even more than they had expected. Even in the face of such bad news, there are those who will argue against the urgency of reform, using the defensive arguments that the problems in Social Security are exaggerated by overly pessimistic assumptions (they are not); that Medicare can be fixed only by making changes to the entire health-care system (both Medicare and the system need fixing); or that those who advocate reforms are trying to secretly dismantle the programs (oh, please).
Social Security has long been debated on Capitol Hill and no progress has been made in recent years. It is a system that is currently broken, and it will go bankrupt by the time the eldest baby boomers retire. We need to act sooner rather than later to fix this program because every day we wait costs us more and more.
Once again, President Bush did not want to wait and issued repetitive warnings about the looming crisis. He tried to do something about it and in advocating social security reform Bush quoted John F. Kennedy, “If not us, then who? If not now, then when?”
However, every effort to reform entitlements was blocked. This is not some sudden problem brought on by the recession. This issue was identified years ago and ignored by the very same people who are now trying to lay blame elsewhere.
Over the next 25 years the number of people receiving Social Security is going to increase by 100 percent. Over the same 25 year period the number of people paying into Social Security is going to increase by only 15 percent. When Social Security began there were roughly 40 workers for every one retiree. During the 1950s it was 16 workers per one retiree. Today the ratio is three to one, and soon it will only be two workers per one retiree. Baby Boomers are filing for Social Security benefits at a rate of about 10,000 a day and this will continue for the next 20 years.
Below are several quotes from the 2005/2006 Congressional debate. As you will notice, liberal lawmakers repeatedly told us not to worry because Social Security would not become insolvent until 2052. They offered no alternative proposal. They just criticized Bush’s plan.
“Despite the White House scare tactics, Social Security remains sound for decades to come. The real threat to Social Security comes from Republicans, most of whom support and voted for privatizing Social Security.” – Senate Majority Leader Harry Reid, May 2006
“The President says the Social Security system is in crisis. He predicted last night that at a certain time the Social Security system would be bankrupt . But it is not in crisis, and it will not be bankrupt . He is simply wrong.” – Senator Byron Dorgan (D-ND).
“The President is barnstorming the country telling the American people that Social Security is a sinking ship and private accounts are the lifeboats into which we should jump. But the administration is manufacturing a crisis that does not exist in order to dismantle Social Security .
“Despite the administration’s claims, Social Security will remain solvent for nearly 50 more years. Even after that, Social Security would still be able to pay 70 to 80 percent of benefits. Modest changes to the system would enable Social Security to pay full benefits well beyond the next 50 years.” – Senator Jack Reed (D-RI)
“The good news is that Social Security is financially strong and will remain strong for decades to come. This year Social Security will run a surplus in the neighborhood of $150 billion. The cumulative Social Security surplus now stands in excess of $1.6 trillion. And guess what. Every single one of those dollars is invested in rock solid Treasury securities backed by the full faith and credit of the U.S. Government.” – Senator Tom Harkin (D-IA)
“The President says there is a crisis in Social Security, which seems to be a strange choice of words because Social Security will be solvent until George W. Bush is 106 years old. Let me say that again because this is important. Social Security will remain solvent until this President reaches age 106. But he and others in the administration have said there is a crisis, it is going to go broke, it is going to be flat busted.” – Senator Dick Durbin (D-IL)
“Your previous speaker said incorrectly that Social Security would be in the red in 2018. That’s simply not true. The more money going out than coming in doesn’t start until 2030. There’s time for us to do this right.” – House Speaker Nancy Pelosi (D-CA)
“The Congressional Budget Office, which is a bipartisan, has said that Social Security will be rock solid through the year 2052 without any changes whatsoever. There is no need to create private accounts. This is a non solution, it creates a problem.” – Rep. Dennis Kucinich (D-OH).
“I rise to help dispel the ridiculous myth that Social Security is in a state of crisis. If you listened to the President at the State of the Union or out on the stump, you have heard the President use words like ‘broke,’’ ‘busted’ or ‘bankrupt .’ Social Security is neither broke nor bankrupt . The program is certainly not in crisis. A crisis is an imminent problem. Yet, while the President cries ‘crisis,’ Social Security continues to bring in more than it pays out in benefits. According to the Social Security trustees, the program will continue to do so for the next 13 years, until 2018, when the trust fund will be tapped to help pay for benefits.’ – Rep. Gene Green (D-TX)
“The President says Social Security will be bankrupt in 2041. It will not be bankrupt ; it will pay 75 percent of promised benefits under very conservative economic assumptions into the indefinite future, or 2053 if we use the estimates of the Congressional Budget Office. So it would not be bankrupt in any sense.” – Rep. Peter DeFazio (D-OR)
“There is a shortfall that will exist in 2052, but the notion we are headed for bankruptcy, that this is the path for bankruptcy, is inaccurate.” – Rep. Sander Levin (D-MI)
“President Bush and Vice President Cheney have been trying to scare the American people into thinking that there’s some kind of a crisis facing Social Security. The administration is trying to convince us that somehow Social Security faces a fiscal collapse. Well, that is just bald-faced lies.” — Roger Hickey, Co-Director of the Campaign for America’s Future.
“Social Security isn’t a big problem that demands a solution. It’s a small problem, way down the list of major issues facing America, that has nonetheless become an obsession of Beltway insiders.” — Paul Krugman of The New York Times in November 2007. Krugman is the recipient of the Nobel Prize for economics.
“Women’s organizations, are opposing Bush’s social security plan. They include the American Association of University Women, the League of Women Voters, the National Women’s Law Center, the National Council of Women’s Organizations, the Older Women’s League. All of these organizations are opposed to these risky privatization plans.” – Rep. Jan Schakowsky (D-IL)
“There were no WMD’s and there is no social security crisis.” – Full page newspaper ads sponsored by Moveon.org According to their website, “Beating back George Bush’s plan to kill social security was the first major victory for the broadly defined netroots movement.”
“Yesterday while making remarks in Milwaukee, President Bush again distorted the facts on Social Security by saying that young workers were ‘paying into a bankrupt system.’ But, nearly all analysts agree that this is simply untrue. ‘Now, if you’re a senior you have nothing to worry about because it’s got plenty of money for you. But if you’re a young worker, a young entrepreneur, a young mom paying into the system, you’re paying into a bankrupt system unless the United States Congress decides to act.’
“Social Security now runs a surplus, raising more in taxes than it pays in benefits. In 2018, the Trust Fund will start paying out more in benefits then it collects in taxes and will need to begin drawing on its interest earnings and reserves to help pay for benefits. But according to the non-partisan Congressional Budget Office, the reserves in the Social Security Trust Fund won’t be depleted until 2052.” – Former Governor Howard Dean (D-VT), Chairman, Democratic National Committee
Many of the above politicians and pundits continue to believe that a problem does not exist. If you combine Social Security and Medicare then we have been paying out far more than what is being received from taxes and premiums. To cover that deficit, we are currently using 1-in-7 income tax dollars. By 2020, it will be 1-in-4, and by 2030, 1-in-2. According to John Goodman of the National Center for Policy Analysis: “Basically, elderly entitlements are on a path that will crowd out spending on every other federal program. Throw in Medicaid, and health care spending alone will crowd out every other thing the federal government is doing by mid-century!”