The Trustees Weigh In

Eakinomics: The Trustees Weigh In We’ve heard a lot from the Biden Administration about Social Security and Medicare. President Biden used his State of the Union speech as the vehicle for an empty, campaign-style pledge to not touch Social Security and Medicare. It followed up with a president’s budget that featured misleading claims about Medicare reforms (there are none) that make it solvent for the next 25 years (they do not). On Friday, however, the Trustees of Social Security and Medicare delivered the facts. Gordon Gray and Jackson Hammond have a complete review of the reports. The Social Security system consists of the retirement (Old-age and Survivors Insurance, or OASI) program and the disability insurance (DI) program, each with its dedicated trust fund. The primary problem is in OASI, where the trust fund is expected to exhaust in 2034. After the projected exhaustion, Social Security revenue will fund only 80 percent of promised benefits. The core problem is that in 2022, OASI spent $1.098 trillion but only collected $993 billion in non-interest income. This cash-flow deficit runs down the trust fund and contributes to overall red ink. This the 13th year in a row that OASI has been in cash deficit, with the program having added $760.0 billion to the debt since 2010. Fixing the cash flow deficit without benefit reforms means that payroll taxes would have to be increased immediately by 37 percent, from a rate of 12.4 percent to 17.0 percent. Medicare is an even bigger budgetary mess. In 2022, Medicare spent $905.1 billion on medical services but only collected $501.3 billion in payroll taxes and monthly premiums. Its cash shortfall represented 30 percent of the federal deficit in 2022, and its continued deficits – since its inception in 1965, it has had a surplus only in 1966 and 1974 – are responsible for about one-third of the federal debt outstanding. This fiscal picture is not new, not a surprise, and not sustainable. It screams for immediate attention and remediation of the type that only happens with strong White House leadership. The response? Crickets.