The annual report from the Social Security and Medicare Board of Trustees is out and it shows how it’s becoming increasingly more difficult for the country to afford the two leading safety net programs—Social Security and Medicare. The Trustees report says those two programs, which account for 41 percent of federal program expenditures, are growing faster than the revenue necessary to keep them solvent.
The most immediate problem is the Social Security Disability Insurance program (SSDI). It was headed for insolvency this year until Congress approved a budget deal dedicating a slightly larger share of Social Security Old Age and Survivors Insurance program (OASI) into the disability fund through 2022. But even with that fix the disability program will have to reduce benefits by 11 percent starting in 2023 unless Congress acts.
As the Trustees’ report states rather matter-of-factly, “The DI Trust Fund does not satisfy the test of short-range financial adequacy.”
The retirement program is also steaming toward insolvency as the baby boom generation retires. As the Wall Street Journal reports, “There were 2.8 covered workers for each beneficiary last year, down from 3.2 in 2008, and that ratio is set to slide to 2.2 over the next two decades.”
As a result, the Social Security Trust Fund will be depleted in 2034. Afterward, the government will collect enough money to pay about three-fourths of the scheduled benefits, again unless Congress acts.
The Trustee report concludes that the Medicare Hospital Insurance Trust Fund (HI) will be depleted by 2028, two years earlier than projected in last year’s report. “At that time dedicated revenues will be sufficient to pay 87 percent of HI costs.”
With the deadlines looming, the entitlement programs have surfaced in the presidential campaigns.
Democratic Presidential candidate Hillary Clinton promises to increase Social Security benefits for lower income retirees, while requiring higher income earners to pay more into the program by raising the current cap of $118,500 that is subject to payroll taxes.
Republican Presidential candidate Donald Trump has promised to preserve Social Security, but has been vague on how to accomplish that. He has shied away from some of the ideas raised earlier in the campaign by other Republican presidential hopefuls like raising the retirement age or reducing benefits for well-to-do retirees.
The annual Trustees report has not received much attention, probably because the warnings are similar to previous years and politicians are often reluctant to spend much time on problems where all the solutions are painful.
However, as with any large debt, the answers are never convenient—those options were lost years ago as Washington looked the other way while entitlements grew faster than tax collections to pay for them.
A day of reckoning is coming, however, and the longer Washington waits to address the problem, the worse the solutions become.