Concord Coalition Warns Tough Choices Must Be Made on Entitlement Programs

Press Release
Monday, May 01, 2006

WASHINGTON -- With today's release of the annual Social Security and Medicare trustees' reports showing a combined long-term unfunded obligation of $15.6 trillion over 75 years in these two entitlement programs, The Concord Coalition warned that the two programs are on a fiscally unsustainable track and urged lawmakers to respond with serious solutions rather than free lunch plans or “do nothing” promises.

“This years trustees' reports again demonstrate unambiguously that Social Security and Medicare cannot provide the level of benefits promised without significant retooling. Some combination of reduced benefits and additional revenue will be required to ensure these programs are fiscally sustainable and generationally equitable in the future. If these programs are to remain viable, lawmakers must demonstrate the leadership and political will to make tough policy choices now in stark contrast to current budgetary shell games being played in Washington,” said Concord Coalition Executive Director Robert L. Bixby.

“Lawmakers and the media erroneously focus on the solvency date as the primary indicator of Social Security's and Medicare's financial health. But solvency is misleading. It's cash flow that matters,” said The Coalition's Policy Director, Ed Lorenzen. “The existence of trust fund balances will not change the fact that these shortfalls will place tremendous pressures on rest of the budget and future taxpayer as well as the economy as a whole. To redeem the bonds in the trust fund and cover the shortfall, Congress will have to cut spending on other programs, issue more debt, or raise taxes. Clearly, ‘financially solvent' bears no relationship to ‘fiscally sound.'”

Between 2017 and 2040 the U.S. Treasury will have to come up with more than $4.2 trillion in today's dollars to cover the shortfalls in the Social Security system. In 2030 alone the program will need a general revenue infusion of $267 billion in today's dollars to redeem its dwindling supply of Treasury bonds. Even if taxes were raised by 2.02% of payroll to eliminate the actuarial deficit over seventy-five years, the system would begin to run annual cash deficits again in 2026.

Medicare's finances are in even deeper disarray than Social Security. According to the Medicare Trustees report, The Hospital Trust Fund that finances Part A expenditures is already running cash deficits and will require ever-increasing infusions of general tax revenues to stay afloat. By 2020 Medicare will require general revenue contributions equal to 25% of individual income taxes in addition to premiums and payroll taxes dedicated to Medicare.

“These programs must not be viewed in isolation, either from each other or from the overall federal budget. Our focus must be on how much these programs are going to cost over the long-term and how future taxpayers are going to pay for them,” said Lorenzen. “According to the Trustees report, the cost of Social Security and Medicare will grow from nearly 7.4 percent of the economy today to 12.7 percent by 2030, consuming approximately 70 percent of all federal revenues, crowding out all other discretionary spending. These programs are simply unsustainable in their current form.”

“Congress and the President cannot afford to wait until a crisis is imminent to take action.” Bixby warned. “The consequences of inaction are dire. Waiting until the eve of insolvency would require a payroll tax hike of more than one-third or benefit cuts in excess of 25 percent. Try running for re-election on those numbers.”

“We hope that these reports, when viewed in context with the current projections of record budget deficits will incite Congress to action,” said Bixby. “Running huge budget deficits on the eve of the retirement of the baby boom generation is just plain irresponsible. These reports should be a wake-up call to get our fiscal house in order, and fast.”

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



CONTACT: Tristan Cohen (703) 894-6222 [email protected]