Social Security and Medicare Projections: 2009 (America's Bankruptcy - $107 Trillion Debt)

National Center for Policy Analysis ^ | June 11, 2009 | Pamela Villarreal

[Conservative Coulter Fan]

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars!  That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums.  Last year alone, this debt rose by $5 trillion.  If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both.

Social Security versus Medicare.  Politi­cians and the media focus on Social Security's financial health, but Medicare's future liabilities are far more ominous, at more than $89 trillion. Medicare's total unfunded liability is more than five times larger than that of Social Security.   In fact, the new Medicare prescription drug benefit enacted in 2006 (Part D) alone adds some $17 trillion to the projected Medicare shortfall - an amount greater than all of Social Security's unfunded obligations. 

Future Payroll Tax Burdens.  Currently, a 12.4 percent payroll tax on wages funds Social Se­curity and a 2.9 percent payroll tax funds Medicare Part A (Hospital Insurance).  But if payroll tax rates rise to meet unfunded obligations:

• When today's college students reach retirement (about 2054), Social Security alone will require a 16.6 percent payroll tax, one-third greater than today's rate.
• When Medicare Part A is included, the payroll tax burden will rise to 25.7 percent - more than one of every four dollars workers will earn that year.
• If Medicare Part B (physician services) and Part D are included, the total Social Security/Medicare burden will climb to 37 percent of payroll by 2054 - one in three dollars of taxable payroll, and twice the size of today's payroll tax burden!

Thus, more than one-third of the wages workers earn in 2054 will need to be committed to pay benefits promised under current law.  That is before any bridges or highways are built and before any teachers' or police officers' salaries are paid.

Impact on the Federal Budget.  The combined deficits of both programs now require about 14 percent of general income tax revenues [see Figure I]. As baby boomers begin to retire, however, that number will soar, and it will be increasingly difficult for the government to continue spending on other activities.  In the absence of a tax increase, if the federal government keeps its promises to seniors and balances its budget:

• By 2020, in addition to payroll taxes and premiums, Social Security and Medicare will require more than one in four federal income tax dollars.
• By 2030, about the midpoint of the baby boomer retirement years, the programs will require nearly half of all income tax dollars.
• By 2060, they will require nearly three out of four income tax dollars.

Impact on Federal Revenues.  On average, every year since 1970, Medicare and Medicaid spending per beneficiary has grown 2.5 percentage points faster than per capita Gross Do­mestic Product (GDP).  In the future, Medicare spending may rise even faster than the Trustees estimate.  According to the Congressional Budget Office (CBO), if Medicare and Medicaid spending continues growing annually at 2.5 percentage points above GDP growth:

• By 2050, Social Security, Medicare and Medicaid (health care for the poor) will consume nearly the entire federal budget.
• By 2082, Medicare spending alone will consume nearly the entire federal budget.

Can Higher Taxes Solve the Prob­lem?  The CBO also found that if federal income tax rates are adjusted to allow the government to continue its current level of activity and balance its budget:

• The lowest marginal income tax rate of 10 percent would have to rise to 26 percent.
• The 25 percent marginal tax rate would increase to 66 percent.
• The current highest marginal tax rate (35 percent) would rise to 92 percent!

Additionally, the top corporate income tax rate of 35 percent would increase to 92 percent.

Pay-As-You-Go.  Social Security and Medicare are in trouble precisely because they are based on pay-as-you-go financing.  Every dollar of payroll taxes is spent.  Nothing is saved, and nothing is invested.  The payroll taxes contributed by today's workers pay the benefits of today's retirees.  However, when today's workers retire, their benefits will be paid only if the next generation of workers agrees to pay even higher taxes.

What about the Trust Funds?  The Social Security and Medicare Trust Funds exist purely for accounting purposes:  to keep track of surpluses and deficits in the inflow and outflow of money.  The accumulated Social Security surplus actually consists of paper certificates (non-negotiable bonds) kept in a filing cabinet in a government office in West Virginia.  These bonds cannot be sold on Wall Street or to foreign investors.  They can only be returned to the Treasury. In essence, they are little more than IOUs the government writes to itself.

Conclusion.  The Social Security and Medicare deficits are on a course to engulf the entire federal budget.  If our policymakers wait to address these growing debts until they are out of control, the solutions will be drastic and painful.

Pamela Villarreal is a senior policy analyst with the National Center for Policy Analysis.

[Conservative Coulter Fan]

"The good news is this Social Security shortfall might be manageable. While the issues regarding Social Security reform are complex, it is at least possible to imagine how Congress might find, within a $14 trillion economy, ways to wrestle with a $13 trillion unfunded liability. The bad news is that Social Security is the lesser of our entitlement worries. It is but the tip of the unfunded liability iceberg. The much bigger concern is Medicare, a program established in 1965, the same prosperous year that Bill Martin cautioned his Columbia University audience to be wary of complacency and storms on the horizon. ... Please sit tight while I walk you through the math of Medicare. As you may know, the program comes in three parts: Medicare Part A, which covers hospital stays; Medicare B, which covers doctor visits; and Medicare D, the drug benefit that went into effect just 29 months ago. The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy."---Richard W. Fisher, CEO of the Federal Reserve Bank of Dallas, Remarks before the Commonwealth Club of California

Why is it no one will entertain the reality that the Welfare State is a dismal failure threatening to ruin the entire country? How can we still have a President and Congress trying to sweep the country with a health care bill that will expand this debt with Obama's annual trillion dollar deficits?

[se_ohio_young_conservative]

As far as I am concerned. Its over as we know it....

I want to be one of the ones left to put this country back together when it falls apart.

[cranked]

Wait until ObamaCare kicks in...

If it is not passed, not defunded, or whatever....we are beyond screwed, but then again, without even adding in ObamaCare, we are beyond screwed. Social programs ftw =.=

[Jack Hydrazine]

Anything the government says will cost x amount I simply take that figure and multiply it by a minimum of three to a max of six. Some times it goes my times higher than that.

$107 trillion will become at least $321 trillion but I suspect the number will be closer to $750 trillion.

Heck, why not just round that number to an even quadrillion!

[TCH]

These are Ponzi schemes we cannot afford... SO END THEM NOW!

[Conservative Coulter Fan]

You know, I’m leaning more and more towards some disastorous end as well. We’re losing the war...just look at the public schools, colleges, the media, even chruches, republicans, entertainment, and so on and so on.

[se_ohio_young_conservative]

I agree..

I hate it. But we are going to go from super power to somewhere down around Brazil on the food chain.

[SpaceBar]

Brazil will be a global superpower in comparison to where we’re headed. Try more like Suriname.

[jackspyder]

this is scarey

[se_ohio_young_conservative]

How do you go from Super Power status with a surplus to on the verge of collapse in less than 14 years ?

explain

[SpaceBar]

Outright sabotage, treason, graft, corruption. Athens used to be the center of the universe, then Rome, then Paris or London. Washington DC had it’s day in the sun. Tomorrow it may be Beijing. The only thing constant is change.

[kittykat77]

Personally, I’m a little skeptical about NCPA reports. Years ago they were touting everything Chilean: Chilean retirement accounts, Chilean disability accounts, etc, etc. Much of that crapped out.

This is not to imply that Social Security and Medicare are AAA-rated, however.

[tbw2]

For all we know, the unwillingness of doctors to take patients over 65 on Medicare is an intended solution to Social Security, by letting their life expectancy drop.

[Conservative Coulter Fan]

Well, that figure is accurate, perhaps you need to try the quote below it from Richard Fischer, CEO of the Federal Reserve Bank in Dallas and his remarks before the Commonwealth Club. David Walker, the former comptroller...you know, head of the GAO, has been sounding off the alarm about unfunded liabilities as well. Those numbers are accurate.

[Conservative Coulter Fan]

Besides, just follow their sources for the report.

[Conservative Coulter Fan]

Another point, unlike a lot of people, I can imagine a world without Social Security or Medicare.

[Jukeman]

What is that song? It’s the end of the world as we know it?

[Jukeman]

You are in denial.

[Jukeman]

Yes - I too can imagine a world without social security and medicare. But every time a conservative politician tries to privatize SSC or medicare - they are blasted by the news media, unions, and liberals everywhere. Now look where we are. I am almost 68 years old and I really hurt for the young people. God bless them - I pray for their deliverance from this mess.

[Cottonbay]

bttt