We haven’t heard much recently about funding shortfalls in Social Security and Medicaid although little has been done to shore up the essential government programs since the last round of warnings.
Now trustees overseeing both government programs have come out again with warnings about the solvency of the programs. An aging population means more people are beneficiaries of the programs. It also means there are fewer younger people––workers––to cover the payroll taxes that fund the retirement and disability benefits and medical expenses of those who have left the workforce. The Los Angeles Times points out that President Trump’s decision to end the Deferred Action for Childhood Arrivals (DACA) program further reduces the number of workers paying those taxes.
For Social Security, tax revenues and interest are no longer covering the annual cost of benefits for about 62 million Americans. The trustees estimate that reserves in the Social Security Trust Fund will be gone by 2034, causing benefits to be cut by one quarter.
According to the Medicare program’s trustees, the trust fund supporting it is expected to be out of money in only eight years. This is three years sooner than previously predicted. A big part of the reason is healthcare costs that are growing faster than inflation or the economy. Without the trust fund Medicare benefits will see bigger cuts, starting at nine percent in 2026 and growing to 22 percent in 2040.
The Times points out that congress could take steps to raise the revenue coming into the Social Security Trust Fund. Payroll taxes could be applied to more of a person’s annual wages rather than the $128,400 cutoff that exists now, or to more types of income than just wages. It could also reduce the money being spent by the program by such things as raising the age at which people can collect full retirement benefits.
Medicare also could bring in more money through higher payroll tax rates. Congress also could stand up to its major donors in the pharmaceutical and medical industries and work harder to reduce healthcare costs.
The current administration seems to be taking the “What, me worry?” approach of Alfred E. Neuman of Mad magazine. Treasury secretary Steven Mnuchin said the coming economic growth will take care of everything and Americans should not worry about it, although past predictions along these lines have proven to have no substance.
After years of warnings and little to no action, we are not hopeful we’ll see any now, especially from this administration and congress. As with most crises, it will have to be immediately upon us and causing real pain before anything is done, and ususally by then it is too late.