Trustees for the Social Security and Medicare programs on Monday announced that the long-term deficit facing the programs was a staggering $59 trillion.
As the retirement age population expands relative to the working-age population in the coming decades and the cost of healthcare explodes, the two programs will eat up a growing amount of government resources unless there are significant changes.
The $59 trillion figure, which is included in the annual report from the trustees on the finances of the programs, comes from taking the 75-year gap between projected revenues coming into the programs and the promised benefits. And it could be optimistic, because, according to the trustees, “the Medicare projections shown here could be substantially understated as a result of other potentially unsustainable elements of current law.”
Measured another way, this represents 4.2% of the value of all the nation’s expected economic output over the next 75 years. By way of comparison, in 2018, the defense budget represented 3.1% of gross domestic product. That means the federal government could eliminate the equivalent of the current Pentagon budget each year relative to projections, or raise taxes by a comparable amount, and it still wouldn’t be enough to close the gap.
Looking at the fiscal gap is a fairer measure of the program’s likely strain on resources for future generations than by focusing on the more popular measure, which is the expiration of the programs’ “trust funds.”
There’s a popular myth that there’s some sort of special fund that’s set aside to pay out benefits from money that was accumulated through taxes collected over the years. In reality, current workers pay for current retirees. For a number of years, the money collected exceeded the cost of running the programs, but the federal government then spent that money on other priorities. Each time lawmakers did that, the U.S. Treasury provided “IOUs” to the Social Security and Medicare systems. As the programs run deficits in the coming decades, those will be paid for by current workers. The only technical difference is that once those IOUs are depleted, the government cannot legally pay out promised benefits.
The date at which we reach that point is just 15 years from now for Social Security’s retirement program, or 2034. After that point, Social Security would only be able to pay out 77% of promised retirement benefits absent an act of Congress. If combined with the disability portion of the program, that would delay the day of reckoning to 2035 and allow for payment of 80% of scheduled benefits. The date is closer, or 2026, for Medicare’s core hospital program. The other parts of Medicare, such as those covering doctors visits and prescription drugs, are funded out of some combination of taxes and premiums, which will also be insufficient absent changes.
But if we assume that Congress will take some action to avoid sudden and significant cuts to Medicare and Social Security in the next seven to 16 years, then ultimately, that cost is going to be borne by future generations, either in the form of lower spending elsewhere or higher taxes. So, that’s why it’s helpful to look at the full gap between promised benefits and expected revenues — and that is $59 trillion.
