San Diego Union-Tribune Editorial

Crunch time


Social Security, Medicare going broke fast

2:00 a.m. May 29, 2009

The problem that nobody in Washington really wants to talk about is getting worse. Continuing to neglect it will only make it even harder to solve in the long run. So, here's the news you don't want to hear:

Social Security and Medicare are going broke. In fact, they are going broke at a faster rate than ever before, due in part to the recession, which is dampening the payroll taxes that pay for the programs.

Social Security and Medicare are the two largest and most popular entitlement initiatives, consuming more of the federal budget than any other single program. This year Medicare already is paying out more in benefits than it receives in payroll taxes. Unless it reins in runaway costs, Medicare will be insolvent in 2017, two years earlier than previously expected. Similarly, Social Security is projected to begin paying out more than it takes in by 2016, a year earlier than previously expected. By 2037, Social Security will deplete its trust fund, unless reforms are implemented.

The situation actually is worse than it appears, because the Social Security and Medicare trust funds – the cushions that are supposed to help pay future benefits – exist on paper only. For years, Congress has diverted to other programs the surplus payroll taxes paid to Social Security and Medicare. In return, Social Security and Medicare have been handed an ever-growing stack of IOUs in the form of government bonds.

What this means is that, when the day arrives that the trust funds must cash in their IOUs, the government will have to borrow hundreds of billions of dollars in the bond market and repay it, with interest, to private investors and larger entities such as China's central government.

The threat of insolvency for Social Security and Medicare is greatly compounded by demographics. The huge baby boom generation is just now beginning to retire. Their sheer numbers will impose a substantial additional burden on the entitlement funds, even as the ratio of workers to retirees declines sharply.

A fiscal solution for both programs is not difficult to devise. What prevents this from happening, however, is intense political opposition to cutting benefits or raising taxes or some combination of both.

For Social Security, the best solution is to trim benefits to bring them in line with payroll tax revenues. Today, the typical Social Security beneficiary receives more than his accumulated payroll levies justify. One reason for this is that Americans are living longer. So, extending the retirement age for today's younger workers from the current 67 to 70 is only sensible. In addition, even a slight downward adjustment in the annual cost-of-living increases for Social Security recipients would go a long way toward staving off insolvency.

Medicare, too, must restrain its rapidly escalating costs, either by reducing benefit levels or overhauling the health care system for retirees. President Barack Obama promises to reduce costs with his sweeping plan for a broad federal intervention into the health care industry. Only problem is, a much more expansive government-run system for all Americans, not just the elderly, is almost certain to compound rather that alleviate Medicare's fiscal crunch

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