The Social Security and Medicare Trustees today released their annual reports on the fiscal condition of the programs, and the situation for these programs is still dire.
Although the programs’ fiscal health hasn’t worsened since last year, both programs are still on an unsustainable course. Most significantly, the programs are running trillion-dollar shortfalls because they’ve promised more benefits than they can afford:
- Social Security has a $7.9 trillion shortfall (up $0.1 trillion from last year), which means the program would require $7.9 trillion in cash—today!—to afford its promises. Alternatively, closing that gap would require payroll taxes to rise immediately and permanently from 12.4 percent of earnings to 14.24 percent. For a worker earning $50,000, that’s a $920 tax increase.
- Medicare has a $30.8 trillion shortfall. To put that into perspective, that is more than twice the size of the entire U.S. economy, which means it would be impossible to infuse enough cash into Medicare to fix the program. However, the assumptions used to arrive at this number give new meaning to the word optimistic.
The good news for Social Security is that the basic position of the trust fund is unchanged: The trust fund, which is currently running deficits and will rebound by 2012, will begin to run deficits in 2015, and the whole piggy bank will be exhausted 2037. The bad news for workers, as the Trustees indicated, is that the main reason these dates are unchanged is that workers will be paying more in payroll taxes thanks to Obamacare, which has made a larger share of earnings subject to Social Security taxes.
The good news for Medicare—at least in theory—is that Obamacare is assumed to extend the life of the Part A Hospital Insurance trust fund by 12 years and bring the costs of outpatient Supplementary Medical Insurance (Part B) and drug benefits (Part D) down. The bad news is that it will never happen.