Social Security has an unfunded liability of $8.6 trillion and will run out of money by 2033, three years earlier than projected just one year ago, according to the 2012 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds.
Medicare’s hospital insurance fund is projected to run dry in 2024.
The unfunded liability is the amount that has been promised in benefits to people now alive that will exceed the revenue the system is expected to collect.
$20.5 Trillion Shortfall
The report shows Social Security’s shortfalls ballooning over time, increasing to $20.5 trillion over the next 75 years.
In addition, “Extending the horizon beyond 75 years increases the measured unfunded obligation,” the report said.
The sluggish economy and high energy prices have contributed to the worsening of Social Security finances.
More than 56 million retirees, spouses, disabled workers, and children currently receive Social Security. In addition, about 50 million people are covered by Medicare, the medical insurance program for elderly Americans that was created in 1965 under Title 18 of the Social Security Act.
The trustees who oversee Social Security are urging Congress to pass legislation to deal with the crisis.
Sooner Better Than Later
“Lawmakers should not delay addressing the long-run financial challenges facing Social Security and Medicare,” the trustees wrote. “If they take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare.”
However, no action is expected before the November elections.
The trustees who oversee the programs are Social Security Commissioner Michael Astrue, Treasury Secretary Timothy Geithner, Labor Secretary Hilda Solis, Heath and Human Services Secretary Kathleen Sebelius, and two nongovernmental trustees, Charles Blahous and Robert Reischauer.
Geithner called Social Security and Medicare “twin pillars of retirement security in this country” and said “it is critical that reforms are slowly phased in over time so current beneficiaries are not affected and future beneficiaries do not experience precipitous changes.”
No Serious Plan
John Goodman, president of the National Center for Policy Analysis, believes the problem is much worse than the government is reporting.
“We not only don’t have the money in the bank, no one has a serious plan to put it there,” says Goodman.
“The actual liability is almost twice what the government is reporting. In 2009 the trustees calculated the two programs’ unfunded liability at about 6.5 times the size of the U.S. economy. But the next year the unfunded liability was cut in half. The reason: ‘Obamacare.’ The minute President Barack Obama signed his health care reform bill, he cut Medicare’s [reported] unfunded liability by more than $50 trillion,” he added.
Goodman says Obamacare uses cuts in Medicare to pay for more than half the cost of expanding health insurance for young people. That means even if the Medicare cuts take place, they won’t reduce the government’s overall obligations.
“They just replace entitlements for seniors with entitlements for young people,” he said.
Bill Wilson of Americans for Limited Government says even without Obamacare, Medicare would be in dire straits.
‘Promise Too Much’
“Like the other entitlement programs, it has promised far more than can be delivered on a sustainable basis,” said Wilson. “All of these programs are lies that promise too much. The trillions of contingent liabilities in these programs are not even factored into our current $15.6 trillion national debt, which is already larger than our entire economy.”
He added, it is “no surprise that particularly the Social Security program has lost three years off the life of its trust fund in a single year. Obama and Congress foolishly underfunded the program by $95 billion with [their] election year extension of the so-called payroll tax holiday. They are consciously facilitating the bankruptcy of the program.”
Wilson says government borrowing to fill in the shortfall is only a temporary stopgap measure, “and in the end this system will collapse because we cannot tax at a high enough rate to save these programs.”
The American Association of Retired Persons (AARP), one of the nation’s most powerful advocacy organizations and a staunch defender of Social Security and Medicare, expressed much less concern.
“For the millions of Americans who have paid into Social Security and Medicare and are counting on their benefits, today’s reports offer a clear assessment of the true status and long-term challenges facing these critical programs,” said AARP Executive Vice President Nancy Leamond in a statement. “The reports underscore the need for an open, national conversation focused on strengthening retirement security for today’s seniors and future generations.”
Although Leamond acknowledged action is necessary to deal with the system’s long-term imbalances, she said the reports “reaffirm that the program can pay full benefits until 2033, and roughly three-quarters of promised benefits beyond that time. It is important to note that the report also confirms that Social Security’s Trust Funds continue to grow and the payroll tax holiday has had no impact on the program’s solvency, as the Treasury has repaid all borrowed funds.”
Of course, for the Treasury to repay the borrowed Social Security funds, it must collect taxes from businesses and individuals or borrow more money that must be repaid.
Tim Kelly ([email protected]) is a political cartoonist, policy advisor, columnist for the Future of Freedom Foundation, and a correspondent for Radio America’s Special Investigator.