Yes, Social Security and Medicare Really Are Going Broke

Social Security

I don’t often disagree with Glenn Greenwald, who I consider one of the most important voices in the mainstream media we have. But I have to take issue with part of his latest blog post about the debate between Joe Biden and Paul Ryan. He wrote:

That social security is “going broke” – a core premise of her question – is, to put it as generously as possible, a claim that is dubious in the extreme. “Factually false” is more apt. This claim lies at the heart of the right-wing and neo-liberal quest to slash entitlement benefits for ordinary Americans – Ryan predictably responded by saying: “Absolutely. Medicare and Social Security are going bankrupt. These are indisputable facts.” – but the claim is baseless.

No, it is not “baseless”, and to illustrate that we can look to Glenn’s sources. He cites this article by David Cay Johnston for Reuters, titled “Social Security is not going broke”. About that title: What’s in a name? Glenn quotes the first part of the article at length. But if you keep reading, you come to:

With the coming bulge in retirees, Social Security will start to pay out more than it takes in 2021, according to projections in the latest annual report. Under current law the program would be able to pay only about three-quarters of promised benefits starting in 2033.

In other words, Social Security is going broke. Johnston goes on to argue that it needn’t go broke if changes are made. Nevertheless, as Glenn’s own source acknowledges, the fact is that it is, as things currently stand, indeed going broke.

The supposed smoking gun mentioned by Johnston and quoted by Glenn that Social Security is not going broke is that there is currently a $2.7 billion surplus. But that does not change the fundamental fact that Social Security represents unfunded liabilities. Here’s an AP article explaining it (emphasis added):

Social Security surplus dwarfed by future deficit

WASHINGTON – As millions of baby boomers flood Social Security with applications for benefits, the program’s $2.7 trillion surplus is starting to look small.

For nearly three decades Social Security produced big surpluses, collecting more in taxes from workers than it paid in benefits to retirees, disabled workers, spouses and children. The surpluses also helped mask the size of the budget deficit being generated by the rest of the federal government.

Those days are over.

Since 2010, Social Security has been paying out more in benefits than it collects in taxes, adding to the urgency for Congress to address the program’s long-term finances….

The Social Security trustees project the surplus will be gone in 2033. Unless Congress acts, Social Security would only collect enough tax revenue each year to pay about 75 percent of benefits, triggering an automatic reduction.

Lawmakers from both political parties say they want to avoid such a dramatic benefit cut for people who have retired and might not have the means to make up the lost income. Still, that scenario is more than two decades away, which is why many in Congress are willing to put off changes.

But once the surplus is spent, the annual funding gaps start off big and grow fast, which could make them hard to rein in if Congress procrastinates.

The projected shortfall in 2033 is $623 billion, according to the trustees’ latest report. It reaches $1 trillion in 2045 and nearly $7 trillion in 2086, the end of a 75-year period used by Social Security’s number crunchers because it covers the retirement years of just about everyone working today.

Add up 75 years’ worth of shortfalls and you get an astonishing figure: $134 trillion. Adjusted for inflation, that’s $30.5 trillion in 2012 dollars, or eight times the size of this year’s entire federal budget.

In present value terms, the Social Security Administration says the shortfall is $8.6 trillion. That means the agency would need to invest $8.6 trillion today, and have it pay returns of 2.9 percent above inflation for the next 75 years, to produce enough money to cover the shortfall.

That’s the rate of return Social Security expects to get from its trust funds. The problem, of course, is that Social Security doesn’t have an extra $8.6 trillion to invest.

Okay, you get the idea. Read the article for more details. Glenn also cites this article at the Center for Economic and Policy Research. And if you read that, you will see:

[T]he Congressional Budget Office projects the program to be fully funded through 2038, with no changes whatsoever…. If we want to make the program fully solvent for the rest of the century, a tax increase that is equal to 5 percent of projected wage growth over the next three decades should be roughly sufficient to do the trick.

So, pretty much the same thing. In other words, as is, Social Security will go broke in about 2038. Once again, the argument is that this needn’t be so if changes are made—specifically, the change of increasing taxes on everyone who will pay into this Ponzi scheme into the future.

Then he links to this article in the Columbia Journalism Review. The CJR article in turn relied on this article from CNN. That article is titled, “CNN Fact Check: Would Romney bankrupt Medicare by 2016?” Which is, of course, an entirely different question, and as the CJR notes, “That’s not to say that Medicare’s cost explosion is not a problem.” And now let’s turn to that CNN article, which says:

When officials talk of Medicare insolvency, they’re talking specifically about the trust fund for Medicare’s hospital insurance, or Medicare Part A, which covers inpatient hospital stays, care at a nursing facility, hospice care and some home health care. The other parts of Medicare, though costs are rising, are “adequately financed” for now, the program’s trustees say.

“For now”. A completely meaningless statement, except inasmuch as it implies that Medicare is not adequately funded into the future, which happens to be the case. And as CNN goes on to point out, citing Medicare’s own trustees, as things currently stand, Medicare Part A will be insolvent by 2024.

In other words, Medicare Part A, like Social Security, is definitely going broke.

Glenn also links to this article, a Washington Post Gelnn Kessler “fact-checker” post that considers the statement “Medicare is going broke” to be a two-Pinocchio lie.  It argues that, even though Medicare Part A will be insolvent by 2024,

the government could still cover 87 percent of estimated expenses in 2024 — and 67 percent in 2050. So, yes, there would be a shortfall, but it doesn’t mean that the fund is bankrupt.

In other words, Kessler argues that even though Medicare Part A will be “insolvent” by 2024, it won’t be “bankrupt”. Which is meaningless, Alice-in-Wonderland nonsense, of course, since “insolvent” is a synonym for “bankrupt”. The numbers Kessler gives are also mentioned in the CNN article:

The Centers for Medicare and Medicaid Services, which administers the program, said this year: “Projected (trust fund) revenue would be adequate to cover 87% of estimated expenditures in 2024 and 67% of projected costs in 2050.”

So we can assume Kessler is relying on the same source. But if you look at that source, you will find that it states right in the first sentence:

The Medicare Trustees Report released today shows that the Hospital Insurance (HI) Trust Fund is expected to remain solvent until 2024….

That is to say, it is will be bankrupt by 2024.

Kessler makes more meaningless statements, such as

Already, in the Obama health care law, a surtax was added that would hit wealthy Americans, which extended the “insolvency” date by 12 years…

Why does he put “insolvency” in quotation marks? Well, because he is trying to argue that Medicare is not going bankrupt even while admitting that it is going bankrupt, so he thinks put the word in quotation marks will somehow alter the fact that it is, according to its own trustees, going to be insolvent by 2024. (Again, I love Glenn Greenwald, but citing the ridiculous Glenn Kessler as a source is about the scholarly equivalent of citing Wikipedia.)

There’s just no getting around it. Medicare and Social Security are going broke. Period. These programs are not only bankrupting the country, but the unfunded liabilities they represent raise the national debt from $17.5 trillion, according to the Treasury Department (the figure at the end of fiscal year 2011), add an additional conservative estimate of  $84 trillion, bringing the total real national debt up past $100 trillion dollars. (Hat-tip: John C. Goodman, whose book Priceless: Curing the Healthcare Crisis I highly recommend; help a guy out and buy it or anything else through that link so I can get a referral payment.)

Don’t let anyone fool you. Respect to Glenn Greenwald, but he’s just flat wrong on this one. These programs are serious problem, and they need to be dealt with seriously. Denial certainly won’t do, and beyond that, neither party seems willing to seriously address the issue of the U.S.’s unfunded liabilities, or otherwise the issue of the national debt, the budget deficit, the bond bubble, and the country’s state of bankruptcy in general.

That aside, I highly recommend people read the rest of what he had to say in that piece, and also to follow Glenn’s blog at The Guardian. He really is one of the most important voice we have.

  • Henry Markant

    If nothing changes, Social Security faces insolvency before 2037. That was projected when the current recession severely crimped payroll deductions. If just the pension benefits presently scheduled are to be continued, they will consume 51 percent of all federal revenues by 2037, not including Medicare. That date is moving ever closer. Current law requires that when its Trust Fund is depleted, payments cannot exceed monthly income and thus must be reduced proportionately. Total federal taxes would then have to be raised to 26 percent of GDP!—46 percent of all taxable incomes—just for Social Security pensions!—not including health care. The longer a solution is postponed, the more onerous will be its effects. The major impediment to solving this highly emotional issue is the lack of sufficient national income to finance it—and political demagoguery. There are a number of partial solutions:
    1. Raise payroll taxes by an additional 1.1 percent to a total of 73 percent for both employer and employee.
    2. Tax all wages—not just those under $106,800.
    3. Achieve 75 percent lower shortfall if cost of living increases are reduced one percent/year. (But none were paid in 2010-11!)
    4. A 75 percent saving would accrue from bumping up the full benefits age from sixty-seven to sixty-eight. Unfunded benefits will decrease sharply if ages are bumped up every few years. In any case, this will definitely become necessary as longevity increases.
    Cover deficits with a national income set-aside from licensing fees. This only suffices if such fees come from more resources: (e.g., water rights, oil, natural gas and mining exploration leasing fees, wellhead production taxes).
    You can buy this book now on any of the following websites:

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