The budget outlook for Social Security is getting dimmer, the U.S. government said, with its primary trust fund now projected to run dry three years sooner than anticipated.
The fund that helps finance benefits for 44 million senior citizens and survivors of deceased workers will be exhausted by 2035, the program’s trustees said in an annual report yesterday. Aid would have to be cut at that point if Congress doesn’t intervene.
Social Security’s disability program, which helps support 11 million Americans, will run through its trust fund in 2016, two years earlier than predicted. The report attributed the fiscal stress in part to the weak economy.
The main trust fund that supports the Medicare health-care program for the elderly will run out of money in 2024, the report said.
The giant retirement programs are straining the U.S. government’s finances, and what to do about them is a central issue in the election-year debate between Democrats and Republicans as President Barack Obama seeks a second term.
“Millions of Americans rely on Social Security and Medicare for income and for health care, and millions more will do so in the future,” said Treasury Secretary Timothy Geithner, one of the programs’ six trustees. “These programs have the resources they need to fulfill their commitments to the American people for years to come. But what these reports also reinforce is that we must take steps to keep these programs whole for the future.”
Combined Trust Funds
The combined Social Security retirement and disability trust funds would be depleted in 2033, three years earlier than projected. After that, incoming revenue would be enough to cover only three-quarters of scheduled benefits.
House Republicans have proposed replacing Medicare with government subsidies to help seniors buy private insurance. Democrats and the Obama administration rejected that plan and have said they want to find ways to shore up the traditional program.
Neither side has offered a plan for Social Security, which at a 2011 cost of $736 billion is the U.S. government’s largest single program.
Lawmakers traded shots over the report. House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, said “rather than work together to advance solutions, the president has opted to play politics with seniors’ care” by distorting “efforts to save and strengthen Medicare.”
House Minority Leader Nancy Pelosi, a California Democrat, said, “despite the repeated efforts of Republicans to privatize Social Security and end the Medicare guarantee, these vital initiatives remain strong” and “Democrats will always ensure they are strengthened, never weakened.”
Presumptive Republican presidential nominee Mitt Romney proposes raising the Social Security retirement age for younger people and indexing benefit increases for higher-income retirees to inflation instead of wages. For Medicare, he endorsed the House Republicans’ plan, authored by Ryan.
Some Democrats said the numbers show there is plenty of time to address Social Security’s finances. “The program will be fully funded for more than 20 years, so we have time to find smart ways to improve it,” said Senate Finance Committee Chairman Max Baucus, a Montana Democrat whose committee has jurisdiction over the program.
The slow economy harms the programs because, when unemployment rises, fewer Americans pay the payroll taxes that support Social Security and Medicare. At the same time, some people unable to find work apply for Social Security benefits earlier than they had planned.
Cost of Living
Also, the report said, a higher-than-expected 3.6 percent cost-of-living adjustment awarded last year to Social Security beneficiaries helped push up program costs. The trustees said they anticipate beneficiaries will be awarded a 1.8 percent increase later this year.
In addition to Geithner, the trustees are the secretaries of Labor and Health and Human Services, the Social Security administrator and two public representatives.
Social Security has two parts: the old-age and survivors insurance program, which supports senior citizens, and the disability insurance program. Each has a trust fund financed primarily by a payroll tax split between workers and employers. Medicare is funded through a combination of payroll taxes, beneficiaries’ premiums and general tax revenue.
Enrollment in the disability insurance program has soared in recent years. There will be 10.9 million beneficiaries this year, according to the report, up 64 percent since 2000.
Spending on the disability program last year totaled $132 billion, while it took in $106 billion, the trustees said. It had $154 billion left in its trust fund last year. Once that dries up, the report said, incoming revenue will cover only 80 percent of scheduled benefits.
“The DI program faces the most immediate financing shortfall of any of the separate trust funds,” the report said. “Thus lawmakers need to act soon to avoid reduced payments to DI beneficiaries four years from now.”