October 30, 2014

Concord Coalition Urges Focus on Cost Growth Rather Than Trust Fund Balance in Evaluating Social Security and Medicare Trustees Report

WASHINGTON----With the 2010 Social Security and Medicare Trustees’ Report scheduled to be released on Thursday, The Concord Coalition today urged lawmakers, the president’s fiscal commission and the public to focus on the report’s projected cost growth of the two largest entitlement programs rather than the traditional measure of 75-year trust fund solvency.The annual report is likely to receive heightened attention this year because reform of Social Security and Medicare is clearly on the agenda of the president’s fiscal commission, which is tasked with recommending policies to Congress that will improve the long-term budget outlook.

“We need to focus on what matters to the budget and the economy, not on internal governmental bookkeeping,” said Concord Coalition executive director Robert L. Bixby. ”Trust fund balances simply record a claim on future general revenues. They tell us how much the government owes itself. They say nothing about how society will meet the growing fiscal burden reflected in the existing commitments of the program going forward.

“What matters fiscally and economically is the programs’ cash balance—that is, the annual difference between outlays and earmarked revenues. With both programs, the combination of growing costs and level payroll tax rates results in a large gap that increases with time. Thus, the existence of trust fund balances on paper does not change the fact that Social Security and Medicare will place tremendous pressures on rest of the budget and future taxpayers as well as the economy as a whole.”

In Concord’s view, the most relevant information in the Trustees’ Report will be the magnitude and timing of the gap between projected benefits and revenues. This gap can be measured against the size of the gross domestic product (GDP) or the size of the tax base on which the payroll tax is levied (“taxable payroll”). Another relevant measure, included in recent Trustees’ Reports, is the total unfunded obligations of the programs in present value terms.

“Diagnosing the right problem is essential to finding the right solutions,” Bixby said. “Some solutions may improve trust fund balances but do little to improve the long-term budget outlook.”

An example can be found in this year’s health care reform legislation. The Medicare spending cuts and higher tax revenues dedicated to the Medicare Part A trust fund will extend the trust fund’s balance in the new report. While some may interpret this as a significant improvement in Medicare’s finances, that view is incomplete. The reforms will not do much to improve the budget outlook, or create new resources to pay Medicare benefits, because they are used to help pay for new Medicaid benefits and to subsidize the purchase of health care insurance.

“In short, the same money can’t be used twice – once to pay for new initiatives and later to improve Medicare’s finances,” Bixby said.

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The Concord Coalition is a nonpartisan, grassroots organization dedicated to balanced federal budgets and generationally responsible fiscal policy. Former U.S. Senators Warren B. Rudman (R-NH) and Bob Kerrey (D-NE) serve as Concord's co-chairs and former Secretary of Commerce Peter G. Peterson serves as president.