Recession erodes Social Security and Medicare trust funds
Analysts were expecting the bad news because fewer people are paying into both programs. Approximately 5.7 million jobs have been lost since December 2007 reducing payroll tax collections dramatically. In fact in March the Congressional Budget Office projected Social Security's surplus would be just about gone in 2010 with only $3 billion more collected in taxes than benefits paid out.
Social Security is a pay as you go system. The payroll taxes of current employees are used to pay benefits to retirees. In the 1980s President Reagan appointed a commission led by Alan Greenspan to fix the system and increase the Social Security Trust Fund to help pay for the Baby Boomer retirement wave. Since that time about 85 percent of Social Security taxes were used to pay benefits and 15 percent were supposed to be put aside in a Trust Fund to help pay Baby Boomer Social Security benefits.
Congress has been using that Trust Fund as its personal piggy bank, taking IOUs from the Trust Fund to pay for their pet projects. Well the party's over. Now that the surplus is gone thanks to the recession, Congress will have to look elsewhere for extra funds. Also, once the taxes collected are not enough to cover benefits and its time to withdraw funds from the Trust Funds, the situation will get even worse. Congress will have to start repaying those IOUs. That's now expected to happen two years earlier in 2017 thanks the to the recession.
Medicare is in even worse shape. It's Trust fund will run out of money in 2017. That's why President Obama has set his priority on fixing health care before Social Security. If the industry can hold down health costs that will help but much more needs to be done or the promises of Medicare and Medicaid will overtake a much larger share of the federal budget. Some type of comprehensive health care bill has just become an even greater priority.
With people's retirement savings also devastated by the bursting of the bubble, now is not the time for the retirement safety net to collapse. Congress has put off fixing the problem long enough. It's time for them to start looking for a bipartisan solution to both Medicare and Social Security.
Lita Epstein has written more than 25 books, including the Complete Idiot's Guide to Social Security and Medicare.