It’s getting to be that time again when the Social Security and Medicare Trustees release their annual report on the programs’ 75-year outlook. This report is the source of valuable information, but it often causes confusion because of the different conclusions that can be drawn depending upon whether one looks at trust fund balances, which are positive, or at cash flows, which are negative.
Is the glass half-full or half-empty?
The Concord Coalition has always stressed the importance of cash flows over trust fund balances. As the Congressional Budget Office (CBO) has observed, government trust funds “have important legal meaning but little economic or budgetary meaning.”1
This is because trust fund “assets” are nothing more than promises from the government to pay itself a lot of money in the future regardless of whether any resources have been saved for that purpose. Trust fund balances are thus easily manipulated to increase their claims on general revenues.
Two recent examples demonstrate why trust fund balances should be taken with a grain of salt. One involves a grant of spending authority (new bonds) to the Social Security trust funds unsupported by any new income. The other involves cutting spending from Medicare and raising Medicare payroll taxes to...