“The story we expected and the story we got was that the shortfall was becoming a more urgent situation,” said Charles Blahous, a former public trustee of the Social Security and Medicare Trust Funds about the latest reports on the programs’ finances.
Congress, he added, “is running out of good options for dealing with it.”
In the latest “Facing the Future” program, Blahous and Robert Reischauer, also a former public trustee of the programs joined Concord Coalition Executive Director Robert L. Bixby and me to discuss the recently released Social Security and Medicare Trustees’ reports.
One revelation from this year’s reports was that both Social Security and Medicare will begin to draw down their trust funds this year. According to last year’s reports, that was not supposed to occur until 2022 for Social Security and 2023 for Medicare Hospital Insurance.
Blahous said that the biggest reason for this is a change in the trustees’ assumptions on future payroll tax revenue based on lower-than-expected payroll tax revenue in the last two years.
The projected date for Social Security’s trust funds to be completely depleted remains 2034, at which point severe measures would be needed to sustain the program. The key is to take corrective action sooner rather than later.
Social Security already runs a cash deficit, paying out more benefits than revenue it receives, and Reischauer warned of what the program would look like if changes are not made.
“When (the trust fund) becomes exhausted, then all benefits and administrative costs have to be reduced to the amount flowing into the system through payroll taxes and these very modest income tax receipts,” said Reischauer. “At that point, if we waited until we are reliant only on payroll taxes, we would have to cut across the board all benefits by 23 percent.”
“Now these are humongous changes. . .that would devastate the lifestyles of a very substantial portion of the retired and disabled population,” said Reischauer.
Alternatively, Reischauer said, simply relying on increased payroll taxes to make up the shortfall in 2034 would require increasing the Social Security payroll tax to 16.27 percent, up from the current 12.4 percent.
Blahous had reason for hope on Medicare because the Affordable Care Act introduced reforms aimed at helping keep costs down.
“If those hold, then the size of the hole we have to fill on the Medicare side is a lot smaller than it is on Social Security,” Blahous said.
“The basic political story is that as the problem has become more severe, more urgent, more real, our political discussion has become increasingly disconnected from reality,” said Blahous.
“It is so easy to demagogue any solution that is put forward,” Reischauer said.
They agreed that in the 1990s, when the difficulties were not as urgent, more people were talking about them. Now that the need for change is more at hand, candidates for public office are more likely to evade a discussion on reforming Social Security and Medicare altogether.
“There was a time where everyone had a plan,” Bixby said. “Now the most popular plan is the ‘do-nothing plan’ even as the problem has gotten worse.”
Blahous said that “ultimately reality is going to become so urgent that it’s not going to be feasible for elected officials to have the same stance of denial.” He said, however, that he saw no signs of that happening in this election.
I host “Facing the Future” each week on WKXL Concord News Radio (N.H.), which is also available via podcast. Join us as we discuss issues relating to national fiscal policy with budget experts, industry leaders, elected officials and candidates for public office. Past broadcasts are available here. You can now subscribe to the podcast on iTunes, Google Play or through RSS.