Monday, July 10, 2006
A question for Bruce Braley – Will our ten year olds need Social Security in 60 years?
Every election year when Democrats start to demagogue on the issue of Social Security and “Mediscare” I find myself fuming at the political process. It could be that I’m not keen on having to listen to the federally financed elderly insurance programs for dummies rhetoric. More likely, it’s the absolute audacity of Democrats gaming the issue to scare old people. It’s maddening, but what’s worse is this campaign strategy seems to work on a few voters every election.
The Democrat’s nominee for the 1st Congressional district Bruce Braley was given the honor of collecting an extensive amount of free publicity with his turn at the Democratic Response to the President. He used the opportunity to push the Democrats gloom & doom on the Republicans’ plan for Social Security, and he did so without offering a single new idea to head off the looming funding crisis in entitlement programs. But why bother with solutions, right?
An excerpt of Bruce’s twenty minutes of too much free press out of the Chicago Tribune's political blog, The Swamp…
Good morning, this is Bruce Braley of
Social Security is a promise to…blah, blah, blah… that has allowed millions of older Americans...yada, yada… Today, Social Security…blah, blah…attack. Yada, yada…Bush… Republican…privatize Social Security…blah, blah, blah...jeopardy.
Democrats…blah, blah…dangerous plan…set aside.
Yada, yada…Bush…future plans. Blah, blah…Social Security…2007.
Blah…November, voters …yada, yada… privatize Social Security… Republican. Blah, blah… protect Social Security…Democratic.
You get the idea. This was a third-rail attack piece designed to pull in free news coverage and set up Braley’s direct mail, push polling and canvassers targeting the “nearly 85,000 people over 65” in Iowa’s First Congressional District.
Older Iowans know that Social Security and Medicare are in trouble, at least they should know. But just in case, I have included the 2006 Social Security & Medicare Trustees note to the public. If you don’t have time to read the mind-numbing & jargon-happy text, I’ll summarize: the programs are going bust, the boomers are just starting to collect, and if it’s not fixed, the grandchildren of today’s older Americans will have no government guaranteed economic and health security in old age.
It’s simple; hate your grandkids and want to make sure they suffer when they get old, vote for Social Security crisis exploiting Democrats like Bruce Braley.
Status of the Social Security and Medicare Programs
Each year the Trustees of the Social Security and Medicare trust funds report on the current status and projected condition of the funds over the next 75 years. This message summarizes the 2006 Annual Reports.
The fundamentals of the financial status of Social Security and Medicare remain problematic under the intermediate economic and demographic assumptions. Social Security's current annual surpluses of tax income over expenditures will soon begin to decline, and will be followed by deficits that begin to grow rapidly toward the end of the next decade as the baby-boom generation retires. Expenditures of Medicare's Hospital Insurance (HI) Trust Fund that pays hospital benefits are projected to exceed taxes and other dedicated revenues in 2006, with annual cash flow deficits expected to continue and to grow rapidly after 2010 as baby boomers begin to retire. The projected growing deficits in both programs will exhaust HI trust fund reserves in 2018 and Social Security reserves in 2040, under current financing arrangements. In addition, the Medicare Supplementary Medical Insurance (SMI) Trust Fund that pays for physician services and the new prescription drug benefit will require substantial increases over time in both general revenue financing and beneficiary premium charges. As Social Security and HI reserves are drawn down and SMI general revenue financing requirements continue to grow, pressure on the Federal budget will intensify. We do not believe the currently projected long-run growth rates of Social Security or Medicare are sustainable under current financing arrangements.
The annual cost of Social Security benefits represents 4.2 percent of gross domestic product (GDP) in 2005 and is projected to rise to 6.2 percent of GDP in 2030, and then slightly to 6.3 percent of GDP in 2080. The projected 75-year actuarial deficit in the combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds is 2.02 percent of taxable payroll, up from 1.92 percent in last year's report. This increase is due primarily to advancing the projection period, the availability of recent data that led to revisions in key assumptions, and to changes in methods. Although the program passes our short-range test of financial adequacy, it continues to fail our long-range test of close actuarial balance by a wide margin. Projected OASDI tax income will begin to fall short of outlays in 2017, and will be sufficient to finance only 74 percent of scheduled annual benefits in 2040, when the combined OASDI trust fund is projected to be exhausted.
Social Security could be brought into actuarial balance over the next 75 years in various ways, including an immediate increase of 16 percent in payroll tax revenues or an immediate reduction in benefits of 13 percent (or some combination of the two). To the extent that changes are delayed or phased in gradually, greater adjustments in scheduled benefits and revenues would be required. Ensuring that the system is solvent on a sustainable basis over the next 75 years and beyond would also require larger changes.
As we reported last year, Medicare's financial difficulties come sooner-and are much more severe-than those confronting Social Security. While both programs face demographic challenges, the impact is more severe for Medicare because health care costs increase at older ages. Moreover, underlying health care costs per enrollee are projected to rise faster than the wages per worker on which the payroll tax is paid and on which Social Security benefits are based. As a result, while Medicare's annual costs were 2.7 percent of GDP in 2005, or over 60 percent of Social Security's, they are now projected to surpass Social Security expenditures in a little more than 20 years and reach 11 percent of GDP in 2080.
The projected 75-year actuarial deficit in the HI Trust Fund is now 3.51 percent of taxable payroll, up from 3.09 percent in last year's report due primarily to greater costs in 2005 than expected, changes in managed care assumptions, advancing the projection period, and more recent data that suggests higher utilization of health services in the future. The fund again fails our test of short-range financial adequacy, as assets drop below the level of the next year's projected expenditures within 10 years-in 2012. The fund also continues to fail our long-range test of close actuarial balance by a wide margin. The projected date of HI Trust Fund exhaustion moves forward to 2018, from 2020 in last year's report, and projected HI tax income falls short of outlays in this and all future years. HI could be brought into actuarial balance over the next 75 years by an immediate 121 percent increase in program income, or an immediate 51 percent reduction in program outlays (or some combination of the two). As with Social Security, however, adjustments of far greater magnitude would be necessary to the extent changes are delayed or phased in gradually, or to make the program solvent on a sustainable basis over the next 75 years and beyond.
Part B of the SMI Trust Fund, which pays doctors' bills and other outpatient expenses, and the recent Part D, which pays for access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future by operation of current law that automatically sets financing each year to meet next year's expected costs. Expected rapid cost increases, however, will result in rapidly growing general revenue financing needs-projected to rise from just under 1 percent of GDP today to almost 5.0 percent in 2080- as well as substantial increases over time in beneficiary premium charges.
The Medicare Modernization Act of 2003 requires that the Medicare Report include a determination of whether the difference between total Medicare outlays and dedicated financing sources (such as premiums and payroll taxes) exceeds 45 percent of total outlays within the first seven years of the projection period (2006-2012 for the 2006 Report). The Act requires that an affirmative determination in two consecutive reports be treated as a funding warning for Medicare that would, in turn, require a Presidential proposal to respond to the warning and expedited Congressional consideration of such proposal. The 2006 Report projects that the difference will reach 45 percent in 2012, marking the first time a determination of "excess general revenue Medicare funding" has been made. A similar determination in next year's report would trigger the Medicare funding warning.
Though highly challenging, the financial difficulties facing Social Security and Medicare are not insurmountable. We must, however, take action to address them in a timely manner. The sooner these challenges are addressed, the more varied and less disruptive their solutions can be. With informed public discussion and creative thinking that relates the principles underlying these programs to the economic and demographic realities, and to the changing needs and preferences of working and retired households, Social Security and Medicare can continue to play a critical role in the lives of all Americans.