October 1, 2014

Trustees’ Warnings Show Need for Entitlement Reform

  • Social Security, established in 1935, is the federal government’s largest program. It represents approximately one-fifth of the federal budget and...

The Medicare and Social Security trustees warned again Monday that Congress must act soon to make the programs more sustainable.

In their 2014 report, the trustees said they were most immediately concerned about Social Security’s Disability Insurance program, which under current law will be unable to pay full benefits in 2016.

“As in past years, the trustees’ annual reports remind us that without broad reforms, Social Security and Medicare will increasingly squeeze other parts of the federal budget while putting steady upward pressure on annual deficits and the nation’s level of debt,” said Robert L. Bixby, executive director of The Concord coalition.

Policymakers and the public should focus more on these programs’ cash flows than on their trust fund balances. Social Security and Medicare Part A (Hospital Insurance) continue to pay out more than they take in through payroll taxes and rely on general federal revenues to make up the difference. The Treasury also heavily subsidizes other parts of Medicare.

Congress may be tempted to deal with the Disability Insurance problem by simply re-allocating some payroll tax revenue but Bixby dismissed this as “essentially a gimmick.” He said elected officials should instead pursue a more comprehensive approach to entitlement reform.

Treasury Secretary Jack Lew said Monday that a re-allocation of payroll taxes to help Disability Insurance would “likely be required” but he said broad reforms should also be put in place.

The trustees’ reports show that demographic pressures on the federal budget are mounting. For example, there are 2.8 workers for each Social Security beneficiary today; that number will fall to only 2.1 workers by 2032, according to intermediate projections.

Health care cost growth has slowed in recent years, leading the trustees to reduce projected Medicare spending. But continuing this trend will require a difficult transformation of the health care system -- and Josh Gordon, Concord’s policy director, cautions that even that would still leave the country with problematic fiscal projections.