Cuts in Social Security and Medicare Are Inevitable. Delaying Reform Will Make It Worse.
While our elected officials continue to delay much-needed reforms to Social Security and Medicare, their financial state gets worse and worse.
The debate about the presidency of the President Donald Trump distracts us from other important issues. One such issue on August 14, which marked the 83rd birthday of Social Security, is whether its record of paying full benefits will make it to the 100th birthday. When the first Gen Xers retire in the 2030s, they may well be the first generation to get fleeced.
The Social Security trust fund is currently in deficit yet will receive enough general revenue transfers (financed annually by your taxes) to pay full benefits until 2034. Medicare’s trust fund will go belly up in 2026.
And then what? Congress has shown it prefers borrowing more money rather than making the hard decisions. Yet the credit card will eventually max out. As then-Federal Reserve Board Chair Ben Bernanke told Congress in 2011, "The unsustainable trajectories of deficits and debt [under current policies] cannot actually happen, because creditors would never be willing to lend to a government whose debt, relative to national income, is rising without limit."
Current spending is unsustainable
Bernanke is right about the debt rising unsustainably. After averaging 35 percent of national income from the mid-1950s through 2008, the national debt has surged to 78 percent today and is projected to reach 100 percent within a decade, and 200 percent by 2050. Even these scary estimates rest on rosy assumptions — no new military or economic crises and creditors willing to accept record-low interest rates from a government heading towards a debt crisis.
The cause of this coming debt deluge is no mystery: Social Security and Medicare are projected to run a staggering $82 trillion cash deficit over the next 30 years. We are adding 74 million retiring baby boomers to a system that provides Medicare recipients with benefits three times as large as their lifetime contributions and pays Social Security benefits typically exceeding lifetime contributions (even accounting for inflation and interest on the contributions).
Politicians promise changes to avoid cuts in Social Security and Medicare, but their alternatives are plainly insufficient. Democrats favor tax hikes on the rich, but even doubling the highest two tax brackets to 70 and 74 percent would close just one-fifth of these programs’ shortfalls — and even that assumes people keep working at 90 percent tax rates when including state and payroll taxes. Slashing defense spending to European levels would close just one-seventh of the gap. Single-payer healthcare proposals are projected by even liberal economists to increase the debt. Republicans favor cuts in antipoverty and social spending, but even the unimaginable elimination of all anti-poverty spending would close barely half of the shortfall.
Responsible lawmakers should move quickly to stabilize Social Security and Medicare, and take no option off the table. Delay only makes the inevitable reforms even more drastic and painful.
Voters need more information
Yet delaying reform is typical practice in Washington. Many lawmakers prefer to play Santa Claus and then stick future generations with the bill. Voters do not fully grasp the long-term costs of these policies because they are not told how the national debt — and its coming stratospheric growth — will affect them personally (hint: imagine your favorite programs eliminated because nearly half of your taxes are needed to pay the interest on this debt, or imagine your income tax rate doubling).
Information is power. Therefore, Congress should order Washington to mail every voter every year a statement of the average annual cost per-family of the spending cuts or tax increases needed to permanently stabilize the debt and how much that cost has changed over the previous year. Stalling would cause that cost to rise as would also spending increases and tax cuts. That would impose a political cost on incumbents. That’s how democracy is supposed to work.
This piece originally appeared at USA Today
David Schoenbrod is a professor at New York Law School and author of “DC Confidential: Inside the Five Tricks of Washington.” Follow him on Twitter here.
Brian M. Riedl is a senior fellow at the Manhattan Institute. Previously, he worked for six years as chief economist to Senator Rob Portman (R-OH) and as staff director of the Senate Finance Subcommittee on Fiscal Responsibility and Economic Growth. Follow him on Twitter here.
This piece originally appeared in USA Today