Last week I mentioned some hard truths about Social Security and Medicare —truths that could impact you and your family in a few years. Let me repeat two of them:
- The Social Security Trustees (led by chief Trustee/Treasury Secretary Janet Yellen) estimate that unless fixes are made, the Social Security Trust Fund will run out in nine years, After that, it estimates that retirees would get just 77% of their benefits.
- Medicare’s Hospital Insurance trust fund is projected to be depleted in 2028, says no less an authority than the Medicare Board of Trustees. The data projects a 10% cut in spending (here’s an explanation from the Kaiser Family Foundation).
These aren’t political talking points. They are cold-hard facts. I’ve been writing about these problems in this space for years now. The clock keeps ticking and the politicians haven’t done anything. Democrats, Republicans, nothing. They just keep talking around the problem, attacking each other, trying to score points and win their next election. The same kind of nonsense is on display for scores of other serious issues as well. And politicians wonder why we hold them in such low esteem? But we’re the ones who keep electing them.
Meanwhile, we learned Wednesday that these problems are perhaps even worse than previously forecast. The nonpartisan Congressional Budget Office (CBO) says spending for both Social Security and Medicare is growing much faster than the rate of federal tax revenues which support them.
The math is downright daunting. Last Spring, the CBO forecast that Social Security spending — $1.2 trillion in 2022 — would explode by more than two-thirds over the next decade. This implies an extra $800 billion. Where’s that going to come from?
Keep in mind, Social Security comes from payroll taxes that are borne by workers and their employers. The problem, again, is math. Some data to chew on:
- 10,000 Americans — the baby boomers born between 1946 and 1964 — are retiring each day, a trend projected to continue into 2029.
- They are living longer — 73.5 for men and 76.4 for women, says the Centers for Disease Control and Prevention.
- The average retiree takes Social Security as early as possible — age 62 — says a study by the Center for Retirement Research at Boston College.
That’s the demand side of Social Security. What about the supply side? The workers who support it through payroll taxes? Again the math, is daunting. In 2020, one Social Security beneficiary was supported by 2.7 workers. By 2039, projects the Social Security Trustees, this will fall to 2.2 workers per retiree—and decline even further after that.
Some more data:
- The U.S. birthrate — the supply of future workers — stands at a multidecade low, with women of childbearing age having 1.65 children, down sharply from 2.0 in the mid-2000s, and 2.46 in 1982. The impact on the tax base will pressure not just entitlements but everything else, like national defense, hurricane forecasting and dealing with future pandemics.
- The Labor Department said Wednesday that there were 11 million job openings in the U.S., as of Dec. 31. There just aren’t enough people to fill them.
- Immigration could help fill these jobs and bolster the tax base — if again, our politicians stopped finger-pointing and actually started solving problems.
Both sides have proposed ideas. Since Social Security is funded primarily through payroll taxes on workers’ incomes of up to $160,200 (this rises with inflation each year), President Biden has suggested eliminating the cap on incomes above $400,000 a year. Republicans have falsely said that Biden wants to raise taxes on everyone. No: Just on those earning more than $400,000. That’s about 1.8% of all taxpayers, who rake in about 25% of all income.
Republicans, meanwhile, have their own proposals. These have included everything from gradually raising the full retirement age — currently 67 — to keep up with longer life expectancy, to cutting spending. Some have proposed “sunsetting” Social Security and Medicare, by forcing Congress to approve them on a regular basis, like they do other federal programs.
If you are retired now or will be in a few years, you’re probably wondering what the future of these programs will be like, or if they’ll even be around. Yes, they will be around. But current trends suggest they could be around in diminished form.
Instead of attacking one another, both Republicans and Democrats should sit down and begin negotiating on behalf of the rest of us. And we should understand that whatever emerges, it is likely to mean some sort of sacrifice on our part.