The Struggles Of Social Security And Medicare

The latest annual report from the Trustees of Social Security and Medicare is out, and it generated a lot of negative headlines.

The big news from the report is that this year the income of the program will exceed the benefits it pays out, so it will have to dip into its reserves or trust fund. I use the terms “reserves” and “trust fund” advisedly, because they really don’t exist. It’s just an accounting gimmick and a legal fiction designed to make the U.S. budget look better than it is. But the dipping into reserves hasn’t happened since 1982. This year the taxes and the interest earned on the debt issued to Social Security by the Treasury won’t cover the payouts. A year ago, the Trustees thought this wouldn’t happen until three years from now.

The other news is that Social Security’s trust fund now is estimated to be depleted by 2034, and Medicare’s is expected to run out of money in 2026.

Social Security will receive enough tax revenue each year to pay about 70% of benefits indefinitely. After the trust fund runs out, the rest of the benefits will have to be paid through higher taxes or they will be reduced.

Here’s the press release from Social Security, and here’s a link to the Trustees’ report. Here’s a video of a former Social Security Commissioner saying that some of the reporting is irresponsible.

Here’s a Barron’s article that makes some good points. (Subscription might be required. Among the good points are that Social Security might run out of money sooner, because the Trustees’ assumptions about demographic changes and economic growth might be too optimistic. The article also argues that we don’t have to worry about the program running out of money. The Treasury can simply transfer money to the program. The real worry is the effects that will have on federal borrowing, the budget deficit, and spending on other programs.