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THE GOVERNMENT will be able to pay full Social Security benefits only until 2033, according to the latest trustees’ report on the Social Security and Medicare trust funds. After that, Social Security’s trust fund will be depleted—and it could only cover 76% of scheduled benefits with the money it collects in payroll taxes.
The timetable is even worse for Medicare Part A, which pays for inpatient hospital care. Its trust fund will be empty in 2026. Thereafter, tax collections would cover 91% of projected expenses.
The best financed benefit programs are Medicare Part B—which pays primarily for doctor visits—and Part D, which covers prescription drugs. How do they escape insolvency? Simple. If their premiums don’t fully cover their costs, both are backed up by the federal government’s general tax revenue.
Which raises an interesting question: Why can’t Social Security and Medicare Part A get the same backup funding from general tax revenue? Currently, Social Security and Medicare Part A are financed by payroll tax collections—and it won’t be enough. For a generation, Americans have been debating how to keep these programs going. On offer has been a distasteful stew of solutions: Raising the eligibility age for benefits, reducing promised benefits, and increasing taxes on workers and their employers. No wonder we haven’t made any progress.
The counterargument: It would be costly to cover these programs’ deficits using general tax revenue. The unfunded obligation for Social Security alone is estimated at $19.8 trillion through 2095, according to the trustees. The other counterpoint: Using general tax revenue would tip Social Security and Medicare into the category of welfare programs, because they’d no longer be self-funding.
That said, these programs are arguably already backed up by general tax revenue. After all, the trust funds are invested in special-issue government bonds. When the trust funds receive interest on those bonds and when they cash some of them in, where do you think the money comes from?
It’s interesting to me given all the comments to the point that Congress should have already solved this problem decades ago, and that the solutions to it are well-known and straightforward – not to say easy or palatable – almost everyone thinks that when the crisis comes to fruition in 12 years or so that Congress will do the right thing. I consider that to be wishful thinking. Personally my retirement plan assumes a 20%+ reduction in SS benefits in 12 years. All of that might not come in the form of monthly benefits reductions – some may come from higher taxes on benefits, some may come from means testing, etc. but it will come.
I’d rather take the 24% hit than have my retirement date choices adjusted. I’ve already had a pension slashed 80% or so.
I’d like to see the cap on SS taxes removed, and cap gains from employer granted stock options or venture capital options in lieu of pay included in the income base. Based on the data from about 5 years back, that would solve ~ 2/3 of the issue and with the cap gains provision, all of it (and I don’t care to pretend that SS is a pension.)
I guess now is when I note that SS isn’t an insurance/pension program. It’s a wealth transfer tax designed to look like the former. FDR was pretending for political purposes; it was probably the right thing to do at the time.
Demographically, SS is in the worst shape around 2033 to 2035 (very close to my full retirement age). After that the ratio of workers to retirees should slowly improve, which should put off another crisis for decades.
https://www.ssa.gov/policy/docs/ssb/v50n1/v50n1p45.pdf
The above link is an interesting summary from 1986 to the tax increase from 11 to 14 per cent to save social security (OASDI).
It’s revealing to note that the maximum wage was about $5700 at the time.
My suggestion is you print a copy of this off and send it to your congressional representative before the 2022 elections, letting them know they need to act sooner rather than later.