Wednesday, May 03, 2006

Social Security Finances Declining

Yesterday, the Associated Press reported (hat tip to Ace of Trump):

Social Security and Medicare trustees say the financial condition of the government's two biggest benefit programs deteriorated slightly over the past year.

...

The annual trustees' report moved up the date that the Social Security trust fund will be depleted by one year to 2040 and moved up the date that the Medicare hospital insurance trust fund will be depleted by two years to 2018.

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[Sen. Jack] Reed [(D-R.I.)]was ... critical of a finding by the trustees that the amount of general revenue needed to finance Medicare will hit 45 percent in 2012, up from 35 percent currently.

Democrats charged that the administration was using the trustees' reports to try to create an air of crisis to make radical changes in the two benefit programs.

The Concord Coalition, a budget watchdog group, however said the trustees were highlighting serious problems that needed to be addressed.

Social Security is currently running a surplus, with more money coming in from taxes than is being paid out in benefits, but this will change once the post-World War II baby boom generation begins retiring in coming years.

Since the government spends the surplus on other federal programs, the Social Security and Medicare trust funds essentially are government IOUs. To redeem those IOUs to pay benefits, the government must do some combination of increasing borrowing, cutting spending in other areas or raising taxes.

That means that the pinch will occur long before the trust funds are depleted when the cost of the programs exceeds the amount they collect in taxes and premiums each year.

For the Medicare hospital insurance trust fund, that crossover point was projected to occur permanently in 2006. For Social Security, the date that taxes will not cover all benefits will occur in 2017, the trustees said, the same date as last year.

The poor financial condition of Social Security and Medicare is not a surprise. Congress debated the issue last year but was not able to reach a consensus to solve the problem. As each year passes, the problem will worsen, and the solution will require increasingly greater amounts of taxes and spending cuts. Do not expect either the Republicans or the Democrats in Congress to act responsibly.

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