Medicare To Be Insolvent This Year, Social Security To Follow In The Next Seven Years
More cheery news to go on top of what Obama is doing to our budget deficits and national debt. Not only is one of the two entitlement behemoths already in the red with the other to follow shortly, but fixing them could require 134% and 16% in the taxes funding them, respectively.
Unless we cut benefits and begin downsizing the programs recognizing that they’re doing us more harm than good. But something tells us that the big government types among us just can’t have that.
The trustees of Social Security and Medicare put out their annual report this week on the financial status of the two government programs. Medicare will be in the red this year, paying out more in benefits than it receives in tax revenue. (All Americans pay a 2.9% Medicare tax on their wages, half remitted by the employer and the other half withheld from the employee’s paycheck.) Social Security is still in the black but is expected to enter the red in 2016. (Americans pay a 12.4% Social Security tax on their wages up to an inflation-adjusted cap each year, again half remitted by employer and half withheld from paychecks.)
Notwithstanding the mountain of government IOUs both programs hold as assets, President Clinton once explained that there are only three options once these programs enter the red: (1) raise taxes, (2) cut benefits, or (3) get a better rate of return. The trustees say that balancing Social Security’s books would require a payroll tax of 14.4%, a 16% increase, if no promised benefits are cut. Medicare would require a 6.78% tax rate, a 134% increase, if no promised benefits are cut.
What bothers me is that all Americans are required to put 12.4% of their wages into Social Security. That’s more than most younger Americans can afford to put into their private retirement accounts. As someone not yet in his 30′s, I wonder if Social Security will even be around by the time I’m able to collect.
It’s clear that these programs don’t work. It’s clear that instead of having some massive government program aimed at providing people with health care and a retirement income, we should empower individuals so that they can do those things on their own. And save the government program for those who truly cannot provide for themselves.
But all of that would make too much sense. It would mean firing people who make six figures administering the current programs. It would mean going up against powerful lobbies like the AARP, which has created a cottage industry on the back of Medicare (for instance). And so sadly, it probably won’t happen.
But it should. Because we’d be better off.
