No one to trust
Every year, when the Medicare and Social Security Trustees issue their annual report on the status of those programs, there’s a flurry of interest in one question: At what point in the future will the programs no longer be able to meet their obligations in full?
The 2019 report estimated that Social Security would be unable to cover full benefits as of 2035, just 16 years from now. Medicare’s day of reckoning is much sooner: 2026, or seven years from now.
Neither program becomes completely broke then. Social Security, for example, would still be able to pay about 79% of benefits -— cold comfort to those who will be depending on those benefits for a significant chunk of their retirement income.
But there’s another fact buried in the Trustees’ report that is of more interest to me. How many current taxpayer dollars are spent on meeting current Social Security and Medicare obligations over and above the annual withholding amounts paid by workers?
The question might surprise you (and the answer even more so). After all, aren’t the payroll deductions that come out of today’s paychecks meant to cover those expenses and then some?
That used to be the case.
But as Americans are living longer, and having fewer children, the payroll deductions of our shrinking workforce are no longer sufficient to pay even current Social Security and Medicare benefits, much less sock some away for the rapidly growing costs that will face these programs as baby boomers continue to retire. (About 10,000 Americans reach the age of 65 every day, and that will continue to be the case every day for the next 10 years.)
And let’s be honest: we never really“saved” any of the funds raised by excess payroll deductions over the last couple of decades anyway. There is not really any mechanism for the U.S. government to do that.
Instead, literally trillions of dollars over those years were spent as they came in, paying for programs at the time or reducing the federal deficit.
To represent the future obligation of the government to make good on that money for the benefit of Social Security and Medicare, the government issued itself IOUs in the form of special interest-earning U.S. Treasury Bills that are held in a misleadingly named “trust fund.”
But when Social Security and Medicare need the money from that fund — as they are starting to do now to pay for benefits not covered by current payroll deductions — the funds represented by the bonds (as well as the interest owed on them) must come either out of the current year’s federal budget or be borrowed elsewhere, raising the federal deficit.
What it all amounts to is a generation-shifting transfer, with earlier governments gaining hundreds of millions of dollars each year, while later governments are saddled with paying it all back, plus interest.
So how much are current taxpayers contributing each year to make up for the shortfall? In 2018, it was $411 billion, and this year it is estimated to be $431 billion. Yes, that’s with a “b,” $431,000,000,000.
Are the Trustees concerned about this? You bet. Have they been concerned for a while? Indeed.
Many readers of the Beacon may remember that the keynote speaker at our 50+Expo back in 2011 was one of the public trustees at the time, an economist named Charles Blahous.
He gave us an earful about how the current problems came to be, and described many options that Congress and the White House could exercise to gradually put Social Security and Medicare into better financial shape with less impact on current budgets. [I repeated a sampling of those in last October’s “From the Publisher,”]
So who is rousing the public to be incensed enough to force Congress and the administration to take steps that will put Social Security and Medicare on a sounder footing?
No one. In part, that’s because the two “public representative” positions on the Board of Trustees — one Democrat and one Republican — have been vacant for four years now.
The remaining Trustees are all members of the administration: the secretaries of Labor, Treasury, Health & Human Services and the commissioner of Social Security.
As a result, years have gone by with no action.
I contacted Blahous for this column, and here’s what he had to say:
“For decades, it’s been the public trustees’ job to inform lawmakers, press and public about Social Security’s financial realities, performing not only a vital bipartisan educational role but acting as a check on government irresponsibility.
“It’s probably not a coincidence that we’ve seen a collapse of responsible stewardship of Social Security and Medicare finances during these same last few years that these vital messengers have been absent from the process.”
Can we expect any movement in the next year or two? Highly unlikely. On the contrary, it seems everyone campaigning for president today is committed either to “preserving” Social Security and Medicare (meaning leave it exactly as it is), or vastly increasing benefits and offering them to more people, exacerbating the financial problems.
Just so you know: in many cases it’s your taxes they are spending and committing to expand. The candidates’ suggestions may or may not be good policy, but either way, they should be upfront about where the money is coming from.
I recommend you raise this point when you have an opportunity to meet or speak with candidates or their surrogates. You can tell them exactly what Charles Blahous told the Beacon:
“We are running out of time to repair Social Security’s finances. If we want Social Security to perform in the future as it has in the past, the time to act is now.”
Only when more of us at the grassroots level express concern and exasperation with what’s happening with Social Security and Medicare will anyone start to take action.