The Washington Post: Social Security and Medicare face a looming fiscal cliff
WASHINGTON, D.C. —This week, the Washington Post Editorial Board highlighted both the impending insolvency of the Social Security and Medicare trust funds, and the chance for a genuine fiscal reform for two of America’s largest programs.
WORD ON THE STREET
From the Washington Post:
For many years, Social Security took in more money in taxes than it paid out in benefits. But the government didn’t save that extra money. Money stored in the trust fund is held in Treasury bonds, meaning the government spent it. Since 2010, Social Security benefits have exceeded payroll tax collections.
Medicare benefits have never been premised on workers getting back what they paid into the program. A husband and wife with an income around $100,000 who turned 65 years old in 2025 are expected to receive 4.4 times as much in Medicare benefits (in present value and net of premiums) as they paid in Medicare payroll taxes during their working years. And the gap is projected to grow: That same couple retiring in 2045 is projected to receive 5.3 times as much in benefits as it paid in taxes.
Last year Medicare premiums covered 14 percent of the program’s expenditures. Payroll taxes covered 33 percent. The remaining 53 percent was mostly debt.
The insolvency dates are meaningful only because they legally force Congress to do something. The Congressional Budget Office assumes in its projections that Congress will continue to fund the programs with general revenue, rather than raising taxes or cutting benefits to match what the trust funds can handle. But using general revenue would require an affirmative choice by lawmakers. They can — and should — choose differently.
Social Security is out of step with modern times. Most countries with fiscally sensible retirement programs follow the same basic structure: A tax-funded transfer payment as a floor, with means-tested benefits and compulsory private savings above that. Such a structure ensures that benefits are targeted where they are most needed without overburdening the government’s budget.
Federal law goes to great lengths to encourage private retirement savings through tax advantages to individuals and employers. Americans have responded to those incentives. Retirement accounts are the largest source of household wealth, greater than home equity.
As a result, a big chunk of Social Security benefits goes to people who don’t need them. Over one-third of benefits are paid to seniors with incomes over $100,000. This share is likely to increase over time. Many younger people who are planning for retirement save under the assumption that they can’t rely on Social Security.
Medicare is the bigger challenge. Its share of the economy will only increase. Taxes can’t go up forever without wrecking economic growth, which would depress revenue along with household incomes. Constraining Medicare’s spending growth is essential.
One way to accomplish that would be to limit the addition of new services to the program. Spending on existing services is fairly well controlled. Most of the projected spending growth in excess of inflation would come from the addition of new billing codes — that is, coverage of new treatments. Limiting those additions might be more politically palatable than other cost controls because it wouldn’t require any reduction in services now covered.
Medicare should also have stronger means-testing. Well-off seniors should be paying full freight for their premiums, and average seniors should be paying more than they currently pay. There’s no way to continue to justify premiums covering less than one-fifth of the costs for health care for the nation’s wealthiest generation.
THE BOTTOM LINE
The Social Security and Medicare Trust Funds will become insolvent by 2032 and 2033, respectively.
The looming insolvency of our social safety nets is inextricably tied to our $40 trillion national debt. Reckless, out of control spending and fiscal mismanagement has allowed the welfare state to push our debt to levels previously unthinkable. With over half of Medicare currently being financed by federal debt, substantial reform is needed to lower Medicare’s spending and restore sustainability to the program, or our children and future generations will be stuck with the bill.
