There was a misleading theme in the reporting of the annual trustees report on Social Security and Medicare earlier this week. The theme is seen in New York Times headline that said “Recession drains Social Security and Medicare.” Ditto the Reuters head saying “Recession hurts Social Security and Medicare” and the CNN.com headline proclaiming that “Recession hits Social Security hard.” These heads tell only a small part of the story. The trustees said the reduced government tax revenues and increased demand for benefits occasioned by the recession accelerated the pace by which both major entitlements are heading towards bankruptcy. But the pell-mell rush to the day when the government can’t pay for all the Social Security and Medicare benefits it has promised began long before the current recession. The trustees report was signed by Treasury Secretary Tim Geithner, Health and Human Services Secretary Kathleen Sebellius and Labor Secretary Hilda Solis, none of whom is in any hurry to give aid and comfort to critics who point to decades of excessive government spending on benefits and promises as the root cause of the looming entitlements crisis.
As things now stand, according to the trustees, Medicare’s Part A will run out of money for reimbursing hospitals for elderly care in 2017, while the Social Security shelf goes bare in 2037. Spending on the two programs exceeded $1 trillion last year and is now increasing at an annual rate that will double it in 2050. With Barack Obama determined to add trillions in new health care and social welfare spending, there is simply no way – short of slashing benefits for the old and infirm – for the government to generate sufficient revenues to cover its promises without massive tax increases on productive, working Americans.
The situation is actually more dire than suggested by the trustees report. The trustees say the crisis in Social Security can be delayed by turning to “trust fund assets.” Those are those mythical IOUs in the Social Security “lockbox.” To understand why those assets are meaningless, just imagine a family that borrows from its IRA to pay everyday living expenses, while writing IOUs to itself to cover the transfers. The family’s IOUs are worthless when retirement day comes, just as the Social Security lockbox IOUs will be.
Medicare’s situation is even more serious. Part B, which covers doctors and outpatient care, and Part D, the prescription drug program, are already totally dependent on general tax revenues, to the tune of $179 billion last year. Curiously, the trustees are unconcerned by these facts because “current law automatically provides financing each year to meet next year’s expected costs.” In other words, Washington can always raise taxes to cover increased benefits.
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