(This is one of a weekly series of posts entitled “A Centrist’s Platform”. The complete collection of Centrist’s Platform posts is available on a single page, or via a special RSS feed.)
If you’ve been reading my blog for a while, you’re probably aware that one of my pet peeves with Washington is the degree to which it’s neglecting the financial prospects of Social Security and Medicare.
The key dates for Social Security have been reasonably widely distributed: The most recent forecasts project that in 2017, Social security will have to begin tapping interest income from the OASDI trust funds in order to maintain operations. In 2027, it is projected that the OASDI trust fund itself will have to be tapped. And in 2041, it is expected that the trust fund will be exhausted, and revenues will be able to fund only a portion of projected benefits.
(The real situation is more complex, since the retirement and disability sides of Social Security technically have different accounts. Disability’s dates are 2005/2013/2026, while Retirement’s are 2018/2028/2042.)
For Medicare, the magic dates are less-well known. In 2007, Medicare is expected to have had to tap interest income from its trust fund to satisfy its obligations. In 2011, the Medicare trust fund is expected to be tapped. And, in 2019, it’s expected that the Medicare trust fund will be exhausted.
In the past couple of years, there has been quite a bit of discussion about the nature of the trust funds — do they “exist” or not. From my perspective the “existence” / “non-existence” of the trust funds is a question of semantics. The accounts exist, but the federal government has borrowed against them to reduce the appearance of a budget deficit. When the trust funds are tapped, the feds will have to pay themselves back, via some combination of revenue increases, a reduction in spending, and external borrowing.
In plain English — starting this year, paying for past borrowing begins to become an increased drag on the federal government’s budget, and without something happening, it’s going to get worse.
Sadly, the nature of American politics is such that politicians tend not to think beyond the next 2, 4, or 6 years…and future budget crises don’t seem quite as important as winning that next election. That’s a shame because as time drags on, the challenge of addressing the forecasted shortfalls will grow exponentially.
In an ideal world, Washington would have already done something about this by now. I’d like to think that the winners of this year’s elections will take on the challenge. But I won’t hold my breath.
For Social Security, the potential fixes are known. They include:
- Increasing the OASDI tax rate;
- Adjusting the cap on earnings subject to OASDI tax;
- Increasing the age at which one becomes eligible for partial or total social security benefits;
- Reducing the rate of future increases in social security checks for some or all beneficiaries; or
- Some combination of the above
The challenge is reaching political consensus on which of those options, or what combination of those options, are most palatable to the country. Heck, if the Executive and Legislative branches didn’t want to make the tough call, they could simply survey the country, asking which option(s) would citizens prefer, and allocate the fix based on the survey.
(I personally don’t have a strong preference. I’d just like the powers-that-be to pick one and move on, so I can plan accordingly.)
For Medicare, the challenge is somewhat tougher, and is (or at least should be) wrapped up in with the larger health care debate going on. We as a society seem to believe that Americans are entitled to the most advanced health care and newest medications. Are we as a society willing to pay the cost? Or, is there a way to better manage that cost. Or, does everyone need the most expensive treatments from the get-go?
In the past couple of years, there was talk of “private accounts” as being part of the solution for the Social Security mess. Personally, I don’t think anyone with a couple of ounces of actuarial or financial sense believed that private accounts were the solution. I’m not necessarily opposed to the idea of private accounts — personally, I’d rather invest my retirement savings rather than letting it sit as a piggy bank for the Treasury to drain — but that sort of a change would need to be implemented as one part of a larger reform effort.
These are some of the items I’d like to see the next President and the next Congress tackle in 2009 (or even during lame-duck season late in 2008), if only they could take a moment or two out of their busy 2010/2012/2014 reelection campaign schedules to do so.