“To me the number one message is: We are running out of time,” said Marc Goldwein. “Medicare Part A is projected to be insolvent in just seven years, the Social Security Old Age program is projected to be insolvent within 15 years.”
“We cannot guarantee full benefits under current law for today’s retirees,” said Goldwein, a senior vice president of the Committee for a Responsible Federal Budget. “So action is needed pretty quickly to put these programs on a sustainable path.”
Concord Coalition Executive Director Robert L. Bixby joined the conversation, explaining how Social Security, Medicare and their trust funds work, as well as providing context for the current state of both programs.
Bixby said he looks at the cash flows for Social Security when examining its financial health; he emphasized that since 2010 the system has been paying out more than it has been taking in. He said that gap will continue to widen as more baby boomers retire.
Goldwein said the deficit in Social Security is already about $80 billion this year, and a total of $1.8 trillion is projected over the next decade alone.
“We have a structural gap that is equal to about one-third of the revenue in the program,” he said.
The changes necessary to put Social Security on a sustainable track depend upon when we start making those changes, Goldwein said. Those changes could take place on the tax side, benefits side or both.
“The sooner we start . . . the smaller the adjustments we would have to make,” he said. Phasing in the changes gradually, he added, would give people confidence in the system and the opportunity to plan and adjust their behavior to better prepare for their later years.
Bixby said, “There is a natural human tendency . . . to put things off, wait for a crisis, but what is happening now is we’re creating a crisis by default; it’s sort of a slow-moving crisis.”
He also explained the basics of how Medicare works.
“The financing for Medicare is a little more complicated than Social Security,” Bixby said. “There are different parts of Medicare that pay for different things.”
Payroll taxes and premiums do not cover all the costs of Medicare. “As the trustees’ report points out, Medicare is running about a $350 billion cash-flow deficit. . .and that is why it’s actually a budgetary issue.”
Goldwein said, “Medicare Part A’s trust fund will run out much sooner than Social Security’s.”
He added, however, that he would not necessarily describe the challenges with Medicare as more urgent. “The imbalances we are trying to close, at least in the near term, are smaller, and with Medicare we have a lot more options that we can phase in more quickly.”
On reform, Goldwein said the issue is not a lack of ideas, it is a shortage of political will.
Bixby added: “There is no magic bullet solution.”
Diane Lim, a principal at the District Economics Group, also joined the show for the next “Economist Mom” segment. She discussed the state of the nation’s economy and how to encourage long-term growth.
She said the short-term to medium-term outlook for the growing economy is good, with no “immediate danger signs of recession.” Most economists see the fundamentals of the economy as quite strong, she added.
“The only downside to the economic condition is . . . the demographic change, the fact that the mix of the population is moving heavily toward retirement age . . . ,” she said. This means a “relatively small workforce” to support retiree benefits, she said, adding: “So that long-term trend is not great.”
Lim said now is the time to make fiscal reforms: “We’re not constrained by the fear that raising taxes now, or reducing benefits, might be severely damaging to the economy; you wouldn’t want to propose phasing in those changes during a time of recession.”
She also said that increasing immigration and investing in human capital and physical capital are important: “Anything that builds up our productive capacity is good for long-term economic growth.”
She said, “It is very important to talk about fiscal reform in the broader context of ‘What can we do to make our long-term economy stronger?’ ” It is a more positive view of fiscal reform options than just dwelling on spending cuts or tax increases, she added.
Hear more on “Facing the Future.” I host the program each week on WKXL, NHTalkRadio.com (N.H.), and it is also available via podcast. Join me and my guests 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.