As Predicted, Corrupt Politicians Say Social Security Will Be Insolvent Earlier Than Estimated

Finances Look Worse for Medicare, Social Security

Editor's Note: Effective January 1, 2011, Congress lowered by 2% the employees' contribution to Social Security just so they could claim the urgent need to make adjustments now instead of later.

“The American people contributed $2-trillion...more to Social Security and Medicare in payroll taxes than was paid out in benefits” but “the government stole” that sum to fund wars and pork-barrel projects! What's more, under one realistic estimate, far from crashing into the red, “Social Security(OASDI) will have produced surplus revenues of $31.6-trillion by 2085. - Paul Craig Roberts

Social Security is an investor funded program that has also been used to fund the government, it is NOT an entitlement program nor was it intended to be any form of welfare. The “entitlement” the government speaks of would be more aptly applied to them; they feeling they are entitled to avail themselves of our investments and use that money for whatever they choose to. - Marti Oakley, Social Security is Not an 'Entitlement' Program, PPJ Gazette, February 17, 2011

May 13, 2011

AP - The bad economy is worsening the already-shaky finances of Medicare and Social Security, draining the trust funds supporting them faster than expected and intensifying the need for Congress to shore up the massive benefit programs, the government said Friday.

Both Medicare and Social Security are being hit by a double whammy: the long-anticipated wave of retiring baby boomers and weaker-than-expected tax receipts, according to the annual report by the trustees who oversee the programs.

The Medicare hospital insurance fund for seniors is now projected to run out of money in 2024, five years earlier than last year's estimate. The Social Security trust funds are projected to be drained in 2036, one year earlier than the last estimate. Once the trust funds are exhausted, both programs can only collect enough money in payroll taxes to pay partial benefits, the report said.

More immediate bad news for seniors: After they've gone two years with no cost-of-living increase in Social Security payments, the trustees project a 0.7 percent increase for next year, a raise so small that it will probably be wiped out by higher Medicare Part B premiums for most beneficiaries.

"There can no longer be any doubt or denial: Our nation's Medicare and Social Security programs are unsustainable and will run out of money sooner than expected," said Senate Republican Leader Mitch McConnell of Kentucky.

Congress and the Obama administration are negotiating possible changes to Medicare and other benefit programs as part of a deal to increase the government's ability to borrow. The $14.3 trillion debt ceiling will be hit Monday, though Treasury officials are taking measures to put off an unprecedented default on government bonds until August, Treasury Secretary Timothy Geithner said.

Congress is putting off changes to Social Security, but Medicare, the government health insurance program for older Americans, is still on the table.

The longer Congress waits to fix the programs, the more likely it is that lawmakers will be forced to impose tax increases, deep benefit cuts, or both, to save them, the report said. By acting sooner, the trustees said Congress can impose gradual changes that reduce the impact on current beneficiaries and give future retirees time to prepare.

"The financial shortfalls confronting both Social Security and Medicare are substantial and — absent legislation to correct them — quite certain," wrote two of the trustees who oversee the programs, Charles P. Blahous III and Robert D. Reischauer. "Elected officials will best serve the interests of the public if financial corrections are enacted at the earliest practicable time."

The weak economy is hurting Medicare and Social Security because fewer people are working and paying payroll taxes that support the programs, the trustees said. Medicare is in worse shape than Social Security, in part because it is also being hit by rising health care costs.

To illustrate the challenges facing the programs, the trustees calculated the tax increases or benefit cuts that would be necessary to make both programs solvent for the next 75 years.

Fixing Social Security would require an increase in the payroll tax of 2.15 percentage points, or an immediate and permanent 14 percent cut in benefits, the report said. Fixing the Medicare hospital fund would require an increase in the payroll tax of nearly 1 percentage point, or a 17 percent cut in benefits.

If benefit cuts are designed to reduce the impact on current beneficiaries, future retirees will face even more significant changes, the report said.

On the other hand, if the Medicare trust fund is allowed to be drained, the program will collect only enough payroll taxes to pay about 90 percent of benefits. If the Social Security trust funds are drained, the program will collect only enough payroll taxes to pay about 77 percent of benefits, the report said.

Nearly 55 million retirees, disabled people and children who have lost parents receive Social Security benefits, which average $1,077 monthly. More than 46 million people are covered by Medicare.

Even after the economy comes back, Medicare will still be in trouble. Part of the reason is the cost of modern high-tech medicine. And people are living longer, and having complicated procedures such as bypass surgery and hip replacements later in life.

On top of that, financial projections for Medicare rely partly on assumptions that the trustees' report say are obviously unrealistic or questionable. Those include a 1990s law that would require a 30 percent cut in payments to doctors, and is routinely waived each year by Congress.

The report also raised questions about whether Medicare cuts under Obama's health care plan would be politically sustainable over the long haul.

"It is important to note that the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report," the trustees said.

Six trustees oversee Social Security and Medicare. Besides Geithner, Blahous and Reischauer, the others are Labor Secretary Hilda Solis, Health and Human Services Secretary Kathleen Sebelius and Social Security Commissioner Michael Astrue.

Social Security Payroll Tax “Holiday” is No Gift to Americans

This 2% payroll tax cut is the beginning of the end of Social Security as we know it. Worker contributions have successfully funded the program for 75 years and that critical linkage between contributions and benefits is what keeps Social Security a self-funded program. Proposals like this threaten the program’s independence, forcing Social Security to compete for limited federal dollars. - Why the Payroll Tax Holiday will Cripple Social Security, Democratic Underground, December 7, 2011

December 10, 2010

NCPSSM - Briefing reporters today, National Committee President Barbara Kennelly, Social Security Works Co-Director Nancy Altman and CEPR Co-Director Dean Baker warned that passage of a payroll tax holiday could have devastating effects on Social Security’s long-term financing.

“As we’ve seen in Washington these days, it’s easy to enact tax cuts but virtually impossible to allow them to expire. This payroll tax holiday proposal will be no different. Election year politics in 2012 will doom the repeal of this $120 billion dollar cut and Social Security beneficiaries will then pay the price.

The American people understand we’re in an economic crisis yet they don’t want to trade their future security for a short-term benefit. They didn’t ask Congress to cut their Social Security contributions, in fact, poll after poll shows they’d pay more to preserve Social Security. I salute the House for saying we need to give this deal another look because this payroll tax provision is no deal at all.”…Barbara B. Kennelly, President/CEO National Committee to Preserve Social Security and Medicare

While the White House promises there will be no long term impact to Social Security because this is a one year “holiday”, clearly Republicans have a very different idea. Consider this quote from President Bush’s spokesman Dan Bartlett, who gleefully describes their strategy which saddled our nation with billions in tax cuts for the wealthy:

“We knew that, politically, once you get [a big tax cut] into law, it becomes almost impossible to remove it. That’s not a bad legacy. The fact that we were able to lay the trap does feel pretty good, to tell you the truth.”

Clearly, GOP Senators also agree with the “temporary means permanent” tax trap:

“Once you bring a rate down, if it goes back up, people will feel that. They’ll feel their paycheck being less and that argument” — that letting it expire amounts to a tax hike — “eventually is bound to be made,” said Sen. Mike Johanns (R-Neb.).

“There’s always a tendency to continue those things… Once something comes in, it’s very difficult to change it,” said Sen. George Voinovich (R-Ohio.)

He then volunteered, without prompting, that

“It would be detrimental to the Social Security system, especially when it’s in bad shape.”

HuffPost noted that some of his colleagues would likely treat the deprivation of Social Security funds as a benefit of such a circumstance rather than a drawback.

“I suspect so, yes,” agreed Voinovich.

Conservatives have long dreamed of a payroll tax holiday specifically because it fulfills two ideological goals, lower taxes and weakening Social Security’s finances. Worker contributions have successfully funded the program for 75 years and that critical linkage between contributions and benefits is what keeps Social Security a self-funded program. Proposals like this threaten the program’s independence, forcing Social Security to compete for limited federal dollars. If made permanent, this payroll tax cut would then double Social Security’s 75 year projected shortfall.

“While the payroll tax cut is sure to be a welcome increase of income for workers, it is also likely to deepen the public’s distrust of Congress and the President, and reinforce the belief held by much of the public that Congress is raiding Social Security.

Past Congresses have worked hard to maintain a wall between Social Security’s funds, which, by law, must be used only for Social Security, and the government’s general fund, which can be used for any purpose, limited only by the Constitution.

The proposal, if enacted, will reinforce the public perception that Congress is cavalier with their contributions, intermingling them at will and substituting general revenue for dedicated workers’ contributions — because that is just what the proposal does.” Nancy Altman, Social Security Works Co-Director

We agree there is a need for more stimulus; however, this payroll tax holiday isn’t the most effective way to provide that economic boost. According to The Center for Budget and Policy Priorities, extending the “Making Work Pay Tax Credit” is a much better and targeted stimulus.

“If the point is to provide a boost to the economy the quickest, fairest, and most effective way would be to simply extend and expand the Make Work Pay tax credit. This has about 10 percent more bang per buck than the payroll tax holiday and would go to all workers, including the state and local government employees not covered by Social Security.”…Dean Baker, Co-Director Center for Economic and Policy Research

Senator Bernie Sanders (D-VT) understands how important this issue is to seniors. Not only has he repeatedly sponsored COLA relief legislation and fought that fight multiple times, he’s now on the floor of the Senate filibustering in the hope that Senators will go back to the table and negotiate a deal that doesn’t trade short term stimulus for long-term pain. You can watch him in action streaming live from his website or on CSPAN.

You also can read details on this issue in the National Committee’s Policy Review of the Payroll Tax “Holiday”.

NOW is the time for seniors to say enough is enough. Tax cuts for the rich combined with threats that weaken Social Security’s funding is not the answer.

We’ve created a number of easy one-step ways for you to connect with your Senator and Congressional representatives. To phone them…call our Legislative Hotline at: 800-998-0180.

Editor's Note:

Social Security is not an entitlement program. Social Security and Medicare are directly funded by "Payroll Taxes" (FICA); 80% of federal revenue comes from taxing wages (individual income tax and payroll taxes).

Social Security has accumulated a massive surplus—$2.5 trillion. This vast wealth was collected over many years from workers under the Federal Insurance Contributions Act (FICA) to pay in advance for baby boom retirements. The money will cover all benefits until the 2040s—unless Congress double-crosses workers by changing the rules (which they did in 2011 by reducing workers' contributions to Social Security by 2%).

This nest egg does not belong to the government; it belongs to the people who paid for it. FICA is not a tax but involuntary savings.

Over the past quarter century, the U.S. government has stolen $2 trillion in Social Security and Medicare revenues to finance wars and pork-barrel projects.

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