The Social Security bankruptcy clock is ticking faster, the government reported Monday. The retirement trust fund is now projected to run out of money by 2033, three years earlier than previously expected. Medicare is still on pace to go broke by 2024 and that could speed up, too, as medical spending continues to rise.
Social Security trustees blame declining prospects on a combination of factors, primarily falling income for working Americans and the accelerating retirement of baby boomers, the mammoth post-war generation that hit the delivery rooms starting in 1946.
Social Security, established in 1935 in the depths of the Great Depression, once was a paragon of self-sufficiency. The taxes paid by workers produced reliable surpluses for the trust fund, ensuring more than enough money would be available for future retirees. Troubles began when politicians discovered they could “borrow” the excess to spend on other programs, without worrying much whether the debt would be repaid – or could be repaid.
The economic downturn of 2007 reduced revenue for most government programs, including Social Security. Then President Obama and Congress tried to stimulate the economy by further cutting Social Security income through a reduction of payroll taxes over the past two years. This 2 percent tax decrease saves the typical $50,000-a-year wage earner about $1,000 annually but threatens to convert Social Security from a program in which workers and retirees have legitimate ownership rights into just another welfare operation financed by general taxation. If the trust funds dry up in 2033, retirees will receive only partial payments.
Medicare, meanwhile, shares many of Social Security’s problems and adds some that are uniquely its own. Older people generally require more medical attention but the Affordable Care Act, if administered as planned, would reduce Medicare funding while mandating insurance coverage for younger Americans who are now uninsured.
How to save these agencies from insolvency is a hot political topic. Some call for reduced benefits. Others say the solution lies in expanding the tax to higher income earners. It’s all a big concern, naturally, for this year’s presidential candidates. Mitt Romney wants Medicare to rely more on private insurance, with government helping poor people pay their bills. President Obama prefers to retain federal guarantees on benefits but is open to the idea of raising the Medicare eligibility age to 67. The Social Security age has been raised before and likely will be again.
The necessity for an expanded government role is growing in direct proportion to the private sector’s retreat from responsibility for retirement and retiree health care. The business world has all but abandoned traditional pensions, leaving workers no choice but to roll their retirement dice in the stock market. Public workers generally have better benefits but even they are starting to worry about the future of their chronically underfunded pension programs.
Government thus faces pressure to rein in Social Security and Medicare spending even as it appears an aging population with dwindling options will need more rather than less public assistance in decades to come. With the projected Social Security bust now just 21 years away – and subject to further revision – there’s little room for procrastination. The ticking clock tells us it’s time to dispense with political games and come up with solutions that really work.