According to a new report by the Social Security and Medicare trustees, the trust fund, which was expected to run out of money in 2035, will now go broke in 2034.
This year, for the first time in 39 years, the cost of delivering benefits will exceed the program’s total income from the payroll tax. From here on, Social Security will be tapping its savings to pay full benefits.
None of this is a surprise. Social Security and Medicare have been running on borrowed time and money for 35 years. But since Congress refuses – or is politically incapable — to act, it’s becoming more likely that Congress will wait until the program is at death’s door before doing anything about it.
They don’t call Social Security the “third rail” of American politics for nothing.
“The Biden-Harris administration is committed to safeguarding these programs and ensuring they continue to deliver economic security and health care to older Americans,” Treasury Secretary Janet Yellen said in a statement.
The latest estimates reflected the push and pull of many factors flowing from the pandemic, and the full impact may take years to sort out. The deep but relatively short recession slashed revenue from payroll taxes. But the death toll from COVID-19, concentrated among older people, reduced future Social Security benefit payouts. Hospitals were stressed by the influx of COVID patients, but Medicare didn’t have to pay for as many knee surgeries, colonoscopies and other more routine procedures. Birth rates and immigration, which tend to bolster the two programs, both fell.
There is no consensus among the trustees about the long-term impact of the pandemic, but judging by what’s happening now, it can’t be good.
There is a sliver of good news for current Social Security recipients. Joe Biden’s inflation will likely increase benefits by up to 6 percent, up from a 1.4 percent increase in 2021.
However, premiums for Medicare are expected to rise about $10 to $158 yearly.
For Social Security, the loss of payroll tax revenue outweighed any savings from what the program would have paid out to people whose lives were lost in the pandemic. The report noted that employment, earnings, interest rates and economic growth plummeted in the second quarter of 2020 after the pandemic hit the United States.
The long-term outlook is not good at all. When the Social Security trust fund is depleted, the government will be able to pay 78 percent of benefits, the report said. When Medicare’s trust fund for inpatient care runs short, it will be able to pay only 91 percent of expected costs, mainly hospital bills. Needless to say, those shortfalls are going to have to be made up either by borrowing money the government doesn’t have or raising payroll taxes.
There will come a time when workers will balk at paying benefits to people when the likelihood exists that those same benefits won’t be around when they retire. But what can be done? We can’t keep this Ponzi scheme going forever. At some point, some generation of retirees is going to be left holding the bag.
It would be best if none of us were around to see that.