It has been the beginning of a busy week for those closely following developments in the federal budget. On Monday, President Obama released the final installment for his FY 2010 budget. Then yesterday, the annual Social Security and Medicare Trustees' Reports were released.
This year, the Trustees' Reports received additional attention because analysts were curious how the current economic downturn would affect the finances for these programs. Early estimates were that it would have a significant impact. A few weeks ago, the Congressional Budget Office provided updated data showing that income for Social Security was expected to decline by $1.2 trillion over a 10-year period. Most of the lost revenue was a result of revisions in their economic forecast.
The Trustees' Reports reaffirmed the worsening financial position of these two programs. In last year's report, the Trustees noted that Social Security would begin to run cash deficits in 2017 and exhaust the trust fund in 2041. However, yesterday's report accelerated those dates to 2016 and 2037 respectively. The outlook for Medicare is worse. For the third consecutive year, the "Medicare funding warning" was issued because of the amount of general tax revenue (as opposed to premiums and payroll taxes) needed to pay benefits. Furthermore, the program is expected to deplete the HI trust fund by 2017 (up from 2019 in last year's report).
However, using the trust fund dates as the sole benchmark for financial strength provides a poor indicator. This was something we highlighted in our release yesterday. No matter which year one decides to examine in the future, the total costs for both of these programs will require a larger commitment from general revenue sources. Without any structural reforms, these programs will move beyond what we can reasonably afford leaving future generations with an increased financial burden. Thus, it is important for policymakers to work together in order to remedy this problem.
During his remarks while introducing the report, Managing Trustee and Treasury Secretary Timothy Geithner noted the importance of addressing the finances for these programs in the near future:
"This year's Trustees Reports once again reminds us that the longer we wait to address the long-term solvency of Medicare and Social Security the sooner those challenges will be upon us and the harder the options will be. The earlier we as a nation commit to working together to make the difficult but achievable changes needed to strengthen the solvency of Medicare and Social Security, the more we give the American people time to plan and adjust and the sooner we will be able to ensure that these vital programs will be as important for generations to come as they are now."
Over the past several months, we have witnessed the impact that unforeseen events -- such as the current economic downturn -- can have. While we have been keenly aware of the long-term sustainability issues within these two programs for some time, policymakers often delayed reform efforts because of projected surpluses in the immediate term. Yet, the Trustees' Reports demonstrate just how quickly these projected surpluses can diminish. This development alone should convince policymakers that it is not too early to begin addressing our country’s long-term fiscal unsustainability.