Social Security and Medicare: Apocalypse When?
Entitlements: A report on Social Security and Medicare holds some grim news: Not only are the programs going bust, but they'll run out of money sooner than expected. The crisis we've been warned about for years is here.
Baby boomers — that 70-million-strong population lump — begin officially retiring this year. That means the government's bill for retirees' pensions and health care has no where to go but up, for decades to come.
Everyone knew this day would come. And virtually every economist and actuary who had run the numbers could tell you, within a few years' certainty, the system was going bankrupt.
But all this seemed to happen in the distant future. Last year, both political parties virtually ignored the topic during their presidential campaigns. It became a non-issue issue.
Well, thanks to a profligate federal government, which will double the national debt to $11.5 trillion in just four years, and a recession that has weakened federal tax revenues, we can no longer ignore the problem. The day of reckoning is at hand.
The Social Security Board of Trustees reported Tuesday that costs will exceed revenues in 2016 — a full year sooner than expected just last year. And total assets — including more than 70 years of "surpluses" built up in the "trust fund" — will be completely gone by 2037 — four years earlier than in last year's report.
The deficit over the next 50 years is expected to be about 2% of taxable payrolls — up from 1.7% last year. By the way, changes in the last year alone have added $5.3 trillion in costs to the program.
Long-term, unfunded liabilities for Social Security and Medicare top $53 trillion — about four times the size of current GDP. Taxes must either rise or benefits shrink by that amount to close that gap.
"We should be neither casual nor hysterical about the revised insolvency dates," said Michael Astrue, commissioner of Social Security. "As with the economy as a whole, the Social Security system will weather this recession."
With all due respect, a little hysteria might be the best strategy right now. Fact is, the long-term outlook is made much worse by the recession. And the problems of Social Security and Medicare are structural — requiring a massive, root-and-branch reform that Washington seems unwilling to do.
Social Security should have been reformed a long time ago. When President Bush put private accounts on the agenda in a very minor way in 2004, he was roundly criticized. Congress did nothing — on either side of the aisle.
Now we must confront the looming bankruptcy of our federal retirement system. It shouldn't be this way.
The financial meltdown and recession, we've heard repeatedly, "prove" that private accounts are a bad idea. This is flatly false.
Andrew G. Biggs, an economist at the American Enterprise Institute, recently ran the numbers. On average, someone retiring this year can draw a Social Security benefit of about $15,700. If that same worker had a personal retirement account, based on historical returns in the stock market, he'd get $2,300 more than that.
That, after two of the worst stock-market downturns in history.
Funny, but the solution to our crisis looks like it's right in front of us. Private accounts would work, making our retirees richer and our economy bigger while easing the need for massive tax hikes later.
The only question is whether our leaders in Congress are brave enough and smart enough to do what's right — or whether they'll continue to fiddle as the nation's finances burn.