Social Security Will Be Insolvent In 16 Years. Maybe Congress Should Do Something About That.
Medicare will run dry even sooner. Do you trust anyone in Washington to solve this problem?
Social Security will be insolvent by 2034, three years earlier than previously expected, and one major fund within Medicare will run dry by 2026, according to a report released Tuesday by the trustees of the two programs.
If you're like me—a 31-year-old who has never harbored any expectation of receiving benefits from either program—then you might have greeted the news with a small degree of cynical relief. This means you'll only have to spend another decade or so throwing a portion of your paycheck into the black hole that is Social Security and Medicaid, right?
It's fine. You can have a moment to celebrate. Go ahead. I'll wait.
OK. By now, that feeling of relief should already be settling into the pit of your stomach and transforming into pangs of fear and loathing. The people responsible for solving this looming crisis—and for mediating what's sure to be a nasty debate over the future of both programs—spent yesterday acting like there is hardly anything more important than a bunch of rich jocks showing appropriate fealty to the president's opinions.
In other words, we are screwed.
Let's review. Social Security is a $900 billion program that provides income to 67 million Americans. About 47 million of them are over age 65, and the majority of the rest are disabled. If you're within 15 to 20 years of that threshold, you might not be relying on that income yet, but you're likely to be depending on it in your future financial plan—if you have one.
Medicare provides health care benefits to about 57 million older Americans—more than twice as many people as had their health insurance disrupted by Obamacare. And you remember how big of a deal that (rightly) was.
It is important to remember that insolvency is not the same as bankruptcy. By 2026 and 2034, respectively, Medicare and Social Security will not have enough money to pay the full cost of their obligations, but that's not the same as saying they'll have no money at all. According to the trustee report, Social Security beneficiaries will face a 21 percent across-the-board benefit cut when insolvency hits. Medicare's insolvency will hit first in the program's hospital fund; without changes that will only be able to pay for 91 percent of costs. And then that number will steadily decline, barring serious reform.
None of this is to suggest that these programs are in themselves worth saving. They are dinosaurs that were designed more than half a century ago for an entirely different workforce and population. For example, when Social Security launched in 1935, the average life expectancy for Americans was 61. Yes, that means the average person died four years before qualifying for Social Security benefits.
Today, the two programs function mostly as a giant conveyor belt to transfer wealth from the young and relatively poor to the old and relatively rich, allowing the average person (who now lives to be 78) more than a decade of taxpayer-funded retirement. Entitlements are also the primary drivers of our national debt, which just hit $20 trillion and is on pace by the mid-2020s to reach levels not seen since World War II.
They are not working. They should be completely revamped.
But do you really believe that Congress and the president are up to the task? They might not even pass a budget this year. Nothing on entitlements will be done before the midterms, and the 2020 presidential race will begin as soon as the last votes are counted on November 6 of this year. Normally, a presidential race could be a good opportunity to debate the future of two of the federal government's biggest expenditures, but these are not normal times.
By the time 2021 rolls around, maybe someone will be ready to do something about Tuesday's news. About the entitlements, I mean, not about whether football players stand for the national anthem.
When that happens, both programs should be restructured to take care of the truly needy, rather than being benefits for anyone who has reached an arbitrary age. As Reason's Nick Gillespie and Veronique de Rugy wrote in a still-very-relevant 2012 feature on the future of America's entitlements, "Focusing on those truly in need instead of automatically shoveling out larger and larger amounts to well-off senior citizens is the best way to avert looming fiscal catastrophe and restore some morality to an indefensible system."
The catastrophe part is pretty unavoidable, thanks to basic demographics. As The Wall Street Journal notes, there were 2.8 workers for every Social Security recipient last year. That's down from 3.3 in 2007, and that's way down from the 5.1 workers per beneficiary that existed in 1960.
Those demographics are destiny. As America ages, this year will mark the first time since 1982 that Social Security has spent more money than it takes in. The Committee for a Responsible Federal Budget, a nonpartisan think tank that favors balanced budgets, notes that the gap will continue to grow, leaving the program with a $900 billion combined deficit over the next decade. (For some useful, if morbid, information, check out the committee's calculator to see how old you'll be when Social Security goes kaputt.)
In the face of that threat, Treasury Secretary Steve Mnuchin issued a statement yesterday promising to do nothing and hope everything turns out okay.
"Tax cuts, regulatory reform, and improve trade agreeements will generate the long-term growth needed to help secure these programs and lead them to a more stable path," Mnuchin said. "Robust economic growth will help to ensure their lasting stability."
This has been a go-to play for the Trump administration. Last year, when various independent projections showed that the Republican-backed tax bill would add $1 trillion to the national debt, even after accounting for economic growth, the Treasury put out a one-page "analysis" promising that future economic growth and politically impossible budget cuts would somehow make the whole thing balance.
"A well-functioning democracy would, by now, have had a mature national discussion marked by a recognition of the need to set priorities among finite resources, as well as the intergenerational unfairness of the status quo, the ethical wrongness of borrowing for current consumption instead of investing in the future, the feasibility of alternative remedies if only we would start now, and so on," writes Mitch Daniels, former governor of Indiana and the current co-chair of the CRFB, in today's edition of The Washington Post. "Regrettably, but realistically, our republic at this point doesn't seem capable of discussions like that."