More about the increasing spending for Social Security and Medicare:
A 'fiscal hurricane' on the horizon
By Richard Wolf, USA TODAY
WASHINGTON — The comptroller general of the United States is explaining over eggs how the nation's finances are going to hell. Although the retirement of the baby boomers will be an important milestone in the demographic transition--the oldest baby boomers will be eligible for Social Security benefits starting next year--the change in the nation's demographic structure is not just a temporary phenomenon related to the large relative size of the baby-boom generation. Rather, if the U.S. fertility rate remains close to current levels and life expectancies continue to rise, as demographers generally expect, the U.S. population will continue to grow older, even after the baby-boom generation has passed from the scene. If current law is maintained, that aging of the U.S. population will lead to sustained increases in federal entitlement spending on programs that benefit older Americans, such as Social Security and Medicare.
The second cause of rising entitlement spending is the expected continued increase in medical costs per beneficiary. Projections of future medical costs are fraught with uncertainty, but history suggests that--without significant changes in policy--these costs are likely to continue to rise more quickly than incomes, at least for the foreseeable future. Together with the aging of the population, ongoing increases in medical costs will lead to a rapid expansion of Medicare and Medicaid expenditures.
This is what the Fed Chairman said about the increase in Social security and Medicare spending:
Although the retirement of the baby boomers will be an important milestone in the demographic transition--the oldest baby boomers will be eligible for Social Security benefits starting next year--the change in the nation's demographic structure is not just a temporary phenomenon related to the large relative size of the baby-boom generation. Rather, if the U.S. fertility rate remains close to current levels and life expectancies continue to rise, as demographers generally expect, the U.S. population will continue to grow older, even after the baby-boom generation has passed from the scene. If current law is maintained, that aging of the U.S. population will lead to sustained increases in federal entitlement spending on programs that benefit older Americans, such as Social Security and Medicare.
The second cause of rising entitlement spending is the expected continued increase in medical costs per beneficiary. Projections of future medical costs are fraught with uncertainty, but history suggests that--without significant changes in policy--these costs are likely to continue to rise more quickly than incomes, at least for the foreseeable future. Together with the aging of the population, ongoing increases in medical costs will lead to a rapid expansion of Medicare and Medicaid expenditures.
Comments from Tres. Sec. Paulson:
Yet the sparring continues. Although Treasury Secretary Henry Paulson recently suggested to reporters that "everything is on the table," Vice President Dick Cheney ruled out any talk of increasing the payroll tax or the amount of income subject to the tax. In April, Bush made an end run around the Senate Finance Committee, using a recess appointment to install an ardent privatization advocate, Andrew Biggs, as deputy commissioner of Social Security. Committee Chairman Max Baucus, D-Mont., who views privatization as a "settled debate," charged that "this administration is clearly not serious about leaving behind the failed schemes of the past."
There's no denying the system needs strengthening. Otherwise, its trustees warn, revenues will eventually fall short of outlays, and Social Security will not be able to pay full benefits throughout the 75-year period for which planning is done.
From Annual Social Security and Medicare Reports:
Social Security's unfunded obligation - the difference between the present values of Social Security inflows and outflows less the existing trust fund - equals $4.7 trillion over the next 75 years and $13.6 trillion on a permanent basis. The actuarial imbalance expressed as a percent of taxable payroll is 1.95 percent over 75 years and 3.5 percent over the indefinite future. This means that, to make the system whole on a permanent basis, the combined payroll tax rate would have to be raised immediately by about one-third from 12.4 percent to about 15.9 percent, or benefits reduced immediately by 22 percent.
This report confirms the need for action; the sooner we take action to strengthen Social Security's financial footing, the less drastic the needed reforms will be. President Bush has called for solutions that generate a permanently sustainable Social Security system through bipartisan efforts.
The 2007 Medicare Trustees Report shows even greater financial challenges. Medicare faces the same demographic trends as Social Security, and, in addition, the system must cope with large increases in health care costs.
April 23, 2007
HP-367
Treasury Secretary Henry M. Paulson, Jr. Statement on the 2007 Social Security and Medicare Trust Fund Reports
WASHINGTON--The Social Security and Medicare Board of Trustees met this afternoon to complete their annual financial review of the programs and to transmit the Trustees Reports to Congress. I welcome my Cabinet colleagues and the Public Trustees, Tom Saving and John Palmer, two well-respected experts in their field. The nation is indeed fortunate to have your service.
For decades, Social Security and Medicare have provided vital support for Americans. As the baby boom generation moves into retirement, these programs face progressively larger financial challenges. If we do not take action soon to reform Social Security and Medicare, the coming demographic bulge will jeopardize the programs' ability to support people who depend on them. Without change, rising costs will drive government spending to unprecedented levels, consume nearly all projected federal revenues, and threaten America's future prosperity. I urge my friends in Congress to join me in a bipartisan effort to strengthen both programs for future retirees.
This year's Social Security report again demonstrates that the Social Security program is financially unsustainable and requires reform. In just 10 years, cash flows are projected to turn negative, and the Trust Funds are projected to be exhausted in 2041. Reform is needed and time is of the essence. The longer we delay, the larger the required adjustments will be – and the burden of making those adjustments will fall more heavily on future generations.
