Fiscal calamities are sometimes sudden and unforeseen. A war or natural catastrophe can require lots of money on short notice. A recession depletes revenues that were already spoken for.
But the crisis in funding for Social Security and Medicare is not that kind. In fact, it’s the most predictable budget crisis the nation has ever faced. Policymakers, alas, have taken its slow emergence not as a chance to act early but as an excuse to procrastinate.
The outlook is darkening. The trustees of the Social Security and Medicare funds report that, yes, they are still running out of money. This year, for the first time since 1982, Social Security will pay more in benefits than it gets in revenue. And the gap will only grow.
The fund that pays retirement and disability benefits, the trustees calculate, will be exhausted 16 years from now. This is bad news for those who don’t plan to retire before 2034 and worse news for those who are younger still. The Medicare fund, however, will be depleted just eight years from now.
If all that happens, Social Security will have the money to cover only about three-quarters of its obligations. Medicare will have just 91 percent of what it needs. Avoiding these grim scenarios will require Congress to find ways to close the gap.
The forecast is scary for those in their 40s and 50s, who can see retirement on the horizon – not to mention for older Americans, who are already there. But it’s worst for younger people, who can expect to be paying more in the short run and getting less in the long term.
The causes of the problem are well-known: benefit costs that have risen faster than income and will keep doing so. The retirement of the baby boom generation has swelled the rolls at a time when birth rates are low. In 1960, there were five Americans working for every one collecting Social Security. By 2005, it was down to 3.3 workers per retiree. Today, it’s around 2.8 and falling.
Medicare has gotten an extra hit, because health care costs have been on a growth spurt. Per capita Medicare outlays are projected to triple by 2040.
So, what to do? The Trump administration says the tax reform passed last year will boost economic growth and bring in a lot more revenue, but so far, it’s done neither. In fact, reducing individual income tax rates trimmed revenue from taxes on Social Security benefits — revenue that goes into the trust funds.
But the administration has a point: Faster GDP growth would make a huge difference in preserving the solvency of the funds. Any policy that promises to boost the economy deserves a serious look.
Another option is admitting more immigrants, which would expand the number of people making payroll tax contributions. But the trustees report that the end of the Deferred Action for Childhood Arrivals program “will reduce the number of authorized workers and projected payroll tax income slightly.” Letting the dreamers stay and work — and admitting more legal immigrants — would be a fiscal boon.
But there is probably no getting around the need to curtail the growth of retirement and Medicare benefits. This is a politically dangerous option, which is why our policymakers have been in no hurry to embrace it. But putting it off will only make solutions harder.
The right time to address the problem was a decade or two ago. Had reforms been adopted then, these programs would have a much better future — and those Americans who need them would have had more time to adapt. As it is, Congress and the president can do a lot to avert disaster. But time is not on their side.