New Social Security, Medicare Projections Are Good News
Author: Greg Valliere
May 7, 2024
NEW PROJECTIONS yesterday on the solvency of Social Security and Medicare showed some modest improvement and had little impact in Washington, as most members of Congress clung to their adamant refusal to consider tax hikes or benefit cuts.
THE GOOD NEWS for seniors is that the solid economy — and the red-hot labor market — have combined to add a year to the date when both programs could begin to go broke. The trustees projected that Social Security would begin to go insolvent in 2035, when only 80% of benefits would be payable if Congress does nothing.
THE TRUSTEES PROJECTED THAT the Medicare Hospital Insurance trust fund — used to fund Part A benefits — saw the biggest improvement in this year’s report. Its depletion date is now pushed to 2036 — five years later than was projected last year — due in part to higher payroll tax income and lower-than-projected 2023 expenditures.
THE FUND used to pay disability benefits — known as the Disability Insurance Trust Fund — will be able to pay full benefits until at least 2098, the last year of the projection period.
THE FUND used to pay retired workers, their spouses, children, and survivors — formally known as the Old-Age and Survivors Insurance Trust Fund — is projected to last until 2033, which is unchanged from last year. At that time, 79% of those scheduled benefits may be payable.
THE PROPOSED SOLUTIONS ARE POLITICALLY RADIOACTIVE: President Biden wants higher taxes on the wealthy, while Donald Trump has rejected that option — and benefit cuts. Trump suggested reforms during the past winter, but he quickly backed away as opposition mounted.
ANY POSSIBLE SOLUTION NEXT YEAR would encounter two huge obstacles — the Trump tax cuts will expire at the end of 2025, and the cost could approach $3 trillion. And the debt ceiling will have to be extended, probably by spring of next year. Those two issues may crowd out any entitlement reform.
CONGRESS IS NOTORIOUSLY TIMID when it comes to dishing out any pain, so we think it could be much later in this decade before there’s a serious look at cutting benefits or raising entitlement taxes. If there’s no action, Social Security benefits would face a 21% cut in 2036 — light years away for this Congress. Our cynical view is that Congress will take the easiest path: simply adding the higher costs to the government debt.
COULD CONGRESS RAISE THE RETIREMENT AGE by a year or two? We can’t rule that out. The full Social Security retirement age, when enrollees can draw the largest benefit, is 66 for individuals born before 1954, and 67 for those born after 1960. Individuals can generally enroll in Medicare at age 65.
AS THE NATION AGES, these effective dates could move up slightly for younger beneficiaries and Cost of Living Adjustments could get a renewed focus. The concept of means testing is still alive, but we suspect younger voters would howl at any major reforms, and Congress would focus on elections and do nothing.
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