Editors at National Review Online explore the future of major American entitlement programs.
Politicians in both parties have behaved as if old-age entitlement programs are infinitely sustainable and require no cost to maintain. The latest accounting of the trust funds for Social Security and Medicare tells a different story.
Trustees of both programs released their annual reports last week on the state of the funds that finance retirement benefits under Social Security and Part A of Medicare, which covers seniors’ hospital bills. They have only bad news. Social Security’s trust fund is set to run out of money by 2032. Medicare’s insolvency is expected just a year later.
To be sure, the programs’ trust funds are essentially an accounting fiction rather than an actual savings account from which they can draw on. During the past century, when the programs were taking in more in payroll taxes than they were paying out in benefits, the resulting surpluses were used for other government spending. The money that was used for general spending was considered to be “owed” to Medicare and Social Security — hence the trust fund convention. However, in recent decades, the programs have been bleeding more in benefits than they have been taking in, dwindling the trust funds. The trust fund has always been a mirage — a vehicle for the government to borrow from one pocket to give to another.
While at the end of the day the trust fund is thus just an accounting quirk, there is a practical implication of the trust funds’ becoming exhausted. Once insolvent, current law prevents the programs from paying benefits beyond what is taken in from payroll taxes. This will mean sudden and significant cuts for seniors. Absent action from Congress, Social Security recipients would see their benefits slashed instantly by 22 percent across the board.
