Legislative Update: Trust Fund Deficits

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Legislative Update: Trust Fund Deficits—How Serious Is It?

Trust fund deficit information recently released by the Congressional Budget Office (CBO) is not new. (See “Trust Funds in Deficit Says CBO” at http://www.tscl.org/NewContent/101736.asp.) TSCL and a number of other senior advocacy groups have said for a long time that the finances of the trust funds are worse than they appear. It’s important to note that when the CBO says that the “trust funds are in deficit,” the agency includes the Civil Service Retirement Trust Fund and Medicare Part B in that statement. Taken alone, the Social Security Trust Fund and Medicare Part A Trust Fund are still solvent and not running a deficit—yet.

Deficits in the trust funds have to do with how they are financed. The Social Security and the Medicare Part A Trust Fund are financed through payroll taxes. General federal revenues, however, finance a significant portion of the Medicare Part B Trust Fund, and the Civil Service Retirement System Trust Fund. Law establishes the portion covered by general federal revenues. When the general revenues are in deficit as they are now, then these two programs are also thrown into deficit.

How will the government pay benefits? President Bush and the new G.O.P majority in Congress have ruled out raising taxes. Instead, they want to make the 2001 tax cuts permanent. The government will be forced to either borrow or cut spending. In the recent past when the government has cut spending, that included making changes to the CPI that also cut the growth of Cost-of-Living Adjustments (COLAs). In addition, the Medicare and Medicaid budgets were also cut.

There is an important strategy that would help put the trust funds on sounder financial footing in the short term—increasing the growth rate of the economy. When the economy grows and the government spends less than it receives in revenues, as it did in the late 90’s, surplus payroll taxes are used to pay down debt. This saves money on interest costs that can be put to better use, like paying Medicare Part B claims.

The clock is ticking on Medicare Part A and Social Security. However, TSCL plans to work closely with Congress to protect Social Security and Medicare beneficiaries from arbitrary cuts or big increases in out-of-pocket costs. Please take time to review the survey at http://www.tscl.org/NewContent/101738.asp and provide information that will help us protect your earned benefits in 2003.

For more on this topic see, “Can We Guarantee Social Security Benefits?” at http://www.tscl.org/NewContent/101495.asp.

February 2003