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Social Security, Medicare verge on critical point

WASHINGTON — Trustees for the government's two biggest benefit programs warned that Social Security and Medicare are facing "enormous challenges," with the threat to Medicare's solvency far more severe.

The trustees, issuing their annual analysis, said the resources in the Social Security trust fund will be depleted by 2041. The reserves in the Medicare trust fund that pays hospital benefits were projected to be wiped out by 2019.

Both those dates were the same as in last year's report. But the trustees warned that financial pressures will begin much sooner, when the programs begin paying out more in benefits each year than they collect in payroll taxes. For Medicare, that threshold is projected to be reached this year, and for Social Security it is projected to occur in 2017.

Both programs are expected to come under increasing pressure as 78-million baby boomers start retiring and drawing benefits.

"The financial difficulties facing Social Security and Medicare pose enormous challenges," the trustees said in their report. "The sooner these challenges are addressed, the more varied and less disruptive their solutions can be."

Treasury Secretary Henry Paulson, one of the trustees, warned of a fiscal train wreck unless something is done.

"Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues and threaten America's future prosperity," Paulson said at a news conference, where he and the other trustees released the report.

Reaction in Congress divided along party lines, with Republicans saying the new report was an urgent call for action while Democrats accused Republicans of using the report as an excuse for making draconian cuts in benefits.

Administration officials said Tuesday that President Bush's recommendations, along with proposals to slow Medicare's growth included in the budget, would make a significant dent in the program's shortfalls. However, Democrats have attacked the proposals, making the prospect for legislation this year unlikely.

Many analysts think the whole debate will be left for the next president to take up with Congress, given the difficulty of making changes in such politically sensitive programs as Social Security and Medicare during an election year.

In 2041, when the Social Security trust fund is exhausted, the program will be collecting enough in payroll taxes to pay 78 percent of current benefits, the report said, up from an estimate of 75 percent last year. The improvement came in part from an increase the report made in the number and type of immigrants, both legal and illegal, who will be arriving in the country in future years. The higher number boosts the number of people paying into Social Security.

Social Security, Medicare verge on critical point 03/25/08 [Last modified: Thursday, October 28, 2010 9:47am]

    

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