Tuesday, May 12, 2009

The entitlements that won't be there

WSJ: "Medicare,Social Sec Trusts Dwindling Faster Than Expected"

Social Security and Medicare trust funds are expected to run out of money sooner than expected, a report released Tuesday shows.
The report, from the programs' trustees, shows that expenses will exceed tax revenues for Medicare's hospital insurance fund in 2017, two years earlier than was estimated in a 2008 report.
Social Security's trust fund is expected to be exhausted in 2037, four years earlier than last year's estimate. Social Security's expenses are expected to outpace the program's tax income by 2016. On a 75-year horizon, Social Security would need additional revenue equivalent to $5.3 trillion in today's dollars to pay all scheduled benefits.
The report "once again reminds us that the longer we wait to address the long-term solvency of Medicare and Social Security the sooner those challenges will be upon us and the harder the options will be," U.S. Treasury Secretary Timothy Geithner said in response to the data.
Megan McArdle follows up with "The Problem with Social Security"

This year the "it's fine" arguers have a tough uphill climb. The year that Social Security goes bankrupt and cuts benefits by 25% moved up four years, to 2037. The surplus fell 25%. The date that Social Security starts becoming a drain on the general fund, rather than subsidizing it, moved forward a year, to 2016. And suddenly these dates don't sound so comfortably far off, do they?
She refers to the automatic benefit cuts that kick in (by law) once the SS Trust Fund is exhausted. The problem with the "it's fine" argument is that it misrepresents the health of the Social Security system which could alter saving behavior today:

The political risk is that whatever the economic theory, we will not politically be able to continue benefits at planned levels. People who counted on those benefits will thereby be made much worse off, because they will have saved too little on the assumption that the benefits would be there.
Without reform, every worker 40 and under in American can expect only 75% of promised benefits. Forbes wants to let you know that there's a future as a Walmart greeter waiting: "Kiss retiring at 67 goodbye."

Extra – The Trustees' full report is here. (pdf)

More - Red State notes that the SS surplus has been used to hide the true size of the federal deficit. In 2016 (previously 2017), the money stops flowing in and starts flowing out.

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