For years now, Peterson’s deficit hawks have been on a mission to privatize the retirement security programs that a super-majority of Americans approve of and support. They have lied and misinformed, distorted and obfuscated, all with the intention of driving the $1 trillion per year collected by the FICA tax directly into Wall Street coffers. They have convinced a generation of headline writers to support their fight, and those writers went into overdrive last week.
For the record, Social Security and Medicare will not be going “broke”, “bankrupt”, or “bust”. From the Social Security Trustees Report:
Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. Through 2022, the annual cash deficits will be made up by redeeming trust fund assets from the General Fund of the Treasury. Because these redemptions will be less than interest earnings, trust fund balances will continue to grow. After 2022, trust fund assets will be redeemed in amounts that exceed interest earnings until trust fund reserves are exhausted in 2036, one year earlier than was projected last year. Thereafter, tax income would be sufficient to pay only about three-quarters of scheduled benefits through 2085.
Please note that, with no adjustment, Social Security will be able to pay 75% benefits through 2085. The structure of the trust fund means that the baby boom generation will be taken care of, so long as the cynical deficit hawks aren’t allowed to raise the age or slash benefits. It is my generation that can look forward to reduced benefits…but no bankruptcy.
Medicare’s actual situation is a similar story, although that program faces the brunt of our nation’s real crisis (hint: the real crisis isn’t Big Bird, teacher’s pay, or firefighter pensions). The rising healthcare costs will drive Medicare to an inability to cover hospital charges in just over a decade.
The projected date of HI Trust Fund exhaustion is 2024, five years earlier than estimated in last year’s report, at which time dedicated revenues would be sufficient to pay 90 percent of HI costs. The share of HI expenditures that can be financed with HI dedicated revenues is projected to decline slowly to 75 percent in 2045, and then to rise slowly, reaching 88 percent in 2085.
The worsening of HI’s projected finances is primarily due to lower HI real (inflation-adjusted) non-interest income caused by a slower assumed economic recovery, and by higher HI real costs caused by higher assumed near-term growth in real economy-wide average labor compensation. The resulting increases in HI real deficits are concentrated in the near term, which is why trust fund exhaustion occurs five years earlier than was projected last year despite a relatively modest increase in the 75-year actuarial deficit.
But I bet you haven’t heard the good news on Medicare from any of your news sources in the so-called liberal mainstream.
Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D, which provides access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs. However, the aging population and rising health care costs will cause SMI costs to grow rapidly from 1.9 percent of GDP in 2010 to approximately 3.4 percent of GDP in 2035 and approximately 4.1 percent of GDP by 2085. Roughly three-quarters of these costs will be financed from general revenues and about one-quarter from premiums paid by beneficiaries.
That doesn’t say anything about a bankruptcy, does it? It doesn’t mention going broke, folding, closing up shop, or leaving everyone out in the cold either. Oh, in case you were wondering, the evil beast that is ObamaCare makes an appearance in the report as well:
Projected Medicare costs over 75 years are about 25 percent lower because of provisions in the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act” or ACA). Most of the ACA-related cost saving is attributable to a reduction in the annual payment updates for most Medicare services (other than physicians’ services and drugs) by total economy multifactor productivity growth, which is projected to average 1.1 percent per year.
The report concludes with the statement that legislative fixes are needed to bring these programs into balance. Action taken sooner rather than later is encouraged. So ask your representative (or the financial editor of your local fish-wrap) why we shouldn’t take legislative action to correct these programs.
Social Security is paid for via a regressive tax…that is, the tax rate gets smaller as an individual earns more. Making that portion of the FICA tax truly flat would fund the program into the 22nd Century, and might possibly allow for the retirement age to be advanced to 60. Earlier retirements in our economy at-large means more jobs for working families.
Medicare is paid for via the same regressive tax…and the same fix would help to balance that program. But here is something else to consider; the Medicare portion of the tax is 1.45% on both employees and their employers. Why not (gasp!) raise the contribution on one or both of the FICA portions on employees and/or their employers? It would seem that, given the low rates of the tax, and their flat nature for earners under $106,000, that room for compromise is available.
Creative policy makers could carve out reductions in the employer portion of the payroll tax for small cap firms, assess a smaller rate on the currently untaxed monies above the income threshold, and advance the rate slightly (by a point or two) on those currently paying. Such a plan would give relief to small business, bring the FICA tax closer to the “fair” standard that so many are pushing for, and give retirees in the United States an earlier date for greater security.
There is room for a plethora of solutions to these challenges, but the media is being driven by cynical forces to a sole argument; the programs are broke, government broke them, and Wall Street to the rescue. Yeah; that Wall Street, the very same street that sunk our economy and needed to be bailed out (at an opportunity cost in the trillions.)
Read the report; think for yourself!
The Rational Middle is listening…