Tough math, politics for Social Security, Medicare
WASHINGTON — It seems no one wants to cut Social Security or Medicare benefits.
Not President Joe Biden, who is already telling voters his upcoming federal budget proposal will “defend and strengthen” the programs. Not Republican House Speaker Kevin McCarthy, who has declared cuts to the programs off the table in negotiations to raise the federal debt limit.
There’s just one glitch with these declarations: Social Security won’t be able to pay out its promised benefits in about a dozen years, while Medicare won’t be able to do so in just five years. Economists have done the projections and say both programs will drive the national debt higher in the decades to come, forcing teeth-gritting choices for the next generation of lawmakers.
Here’s a breakdown of the dilemma, the potential fixes and the harsh politics around Social Security and Medicare:
The challenge
It’s a math problem that requires a political solution.
Payroll taxes largely fund Social Security and Medicare. They generally get deducted from workers’ paychecks, which is why Biden, a Democrat, says people are merely getting back what they’ve already paid into the system.
But as more baby boomers age and retire, there are more beneficiaries and not enough tax revenue to fund the programs. Payroll taxes are expected to generate $1.56 trillion this year, but the combined costs of Social Security and Medicare are likely to be $2.16 trillion, according to a Congressional Budget Office report last week. The office warned in its report that Social Security benefits may need to be cut even earlier than past projections, beginning in 2032.
The shortfall in tax revenues combined with a rising number of recipients would eventually lead to Social Security’s trust fund being unable to fully pay benefits in 2035, a Social Security and Medicare trustees report predicted last June, though the CBO said it could happen sooner. Medicare’s trust fund would be unable to pay full benefits starting in 2028.
What are the solutions?
There is basically some combination of four options:
• Raise taxes.
• Change benefits such as the eligibility age.
• Cut costs.
• Rely more on general revenues to cover the gap, which could mean higher budget deficits or cuts to other programs.
Biden took a step last year with his Inflation Reduction Act, which would allow Medicare to negotiate lower prices on a handful of drugs and charge drug companies when they raise the price of drugs faster than inflation.
The CBO said the prescription drug components of the law would save $237 billion over 10 years.
Sen. Mitt Romney, R-Utah, has pushed legislation that would create bipartisan committees to look at ways to salvage the Social Security and Medicare trust funds. The bill has gone nowhere but has limited bipartisan support, including from Senate Democrats Joe Manchin of West Virginia and Mark Warner of Virginia.
Payroll taxes were capped last year at $147,000 — meaning no one paid the taxes after surpassing that threshold. In 2019, Rep. John Larson, D-Conn., proposed a bill that would reinstitute the payroll tax at earnings above $400,000.
Last year, members of the House Republican Study Committee proposed raising the age at which someone could qualify for Social Security and Medicare. Right now, people can access their full Social Security benefits at 67, an age minimum that’s increased by two years since the program was first established nearly 90 years ago. You must be at least 65 to access Medicare.
Reform is possible
Go back 40 years to 1983. President Ronald Reagan, a Republican, and House Speaker Tip O’Neill, a Democrat, struck a deal to extend the life of Social Security, which was facing insolvency. The amendments to the program raised the retirement age, delayed the cost-of-living adjustment by six months and mandated that government employees start paying into Social Security, among other changes.
In the 1984 elections, there was little political fallout. Reagan won a second term in a landslide, while Democrats held onto the House.
Global problem
It’s not just the U.S. There’s pushback in other countries amid efforts to restrain costs tied to an aging population.
There have been repeated protests in France over French President Emanuel Macron’s plans to raise the minimum retirement age for a full state pension from 62 to 64. Nearly 1 million people marched on Feb. 11.
In the Chinese city of Wuhan last week, seniors belted out the communist anthem “The Internationale” in protest of the government cutting health care benefits.