Legislative Update: Deficits Put New Pressures on Social Security and Medicare Trust Funds

Send this article to a friend.

Printer friendly version.

Legislative Update: Deficits Put New Pressures on Social Security and Medicare Trust Funds

The return of budget deficits has growing numbers of you worried. Although Social Security and Medicare are adequately financed in the short term, deficits could make some unpopular fixes necessary far sooner than many lawmakers like to admit. According to the Congressional Budget Office (CBO), budget deficits are larger and could last longer than previously believed. The CBO projects the non-Social Security portion of the deficit will last through 2010 and a modest $4 billion surplus will not occur until 2011. Until then, all surplus Social Security will be used for government operations. This means that the financial resources to pay current benefits cannot be counted upon right as millions of new retirees start to draw benefits.

Although Social Security and Medicare Trustees say revenues coming into the system cover costs until 2016, “focusing on the accumulating balance in the Trust Funds can be misleading,” warns the CBO. Why is it misleading? When making their projections of the Trust Fund “crisis dates,” Social Security and Medicare Trustees count the “interest-earned” by the “special obligation” bonds or I.O.U.s held in the Trust Funds. But this interest is not a real cash asset—it’s on paper only. When the federal budget is in deficit, without revenues to pay that interest or redeem those special obligation bonds, current law requires that benefits must be cut. The CBO estimates that Social Security and Medicare Trust Fund costs will begin to exceed revenues by as early as 2010, six years earlier than the estimates of the Social Security and Medicare Trustees.

The bottom line? If benefits are to be paid, the budget has to be balanced. On September 30th, budget legislation that enforced fiscal discipline and resulted in the budget surpluses of the late 1990’s expired. Lawmakers have shown little interest in extending it. But cutting deficits and protecting the Social Security and Medicare surplus is the first step to shoring up Social Security and Medicare. That requires more discipline than politicians can muster without a law requiring it. We urge you to contact your Members of Congress at http://action.tscl.org/GuidetoContactingCongress.asp and let them know how important balance is to the budget and to your benefits.

Sources: “Social Security and the Federal Budget: The Necessity of Maintaining a Comprehensive Long Range Perspective,” The Congressional Budget Office, August 1, 2002. “The Budget and Economic Outlook Update,” The Congressional Budget Office, August 2002.

For a related article on this topic, see “Social Security Trustees Predict Lower COLAs, More Taxation of Benefits” at http://www.tscl.org/NewContent/101517.asp.

November 2002