By Alison Fitzgerald
May 12 (Bloomberg) -- The financial health of Social Security and Medicare, the two main safety nets for American retirees and the elderly, is declining as the recession cuts payroll-tax contributions just as the baby-boom generation begins to retire.
The Social Security trust fund will run out of assets in 2037, four years sooner than previously forecast, the trustees said today. Spending on Medicare, the health insurance plan for the elderly, will reach a legal limit by 2014, the same year predicted in 2008, the trustees’ report said.
The deteriorating position of the two funds puts pressure on Congress and President Barack Obama to come up with ways to cut costs and boost revenue for both. Obama yesterday said fixing the nation’s health-care system is an “imperative for America’s economic future.”
“After we have passed health-care reform that puts our nation on a path to lower growth in health-care costs and expanded affordable coverage, this president will work to build a bipartisan consensus to ensure the long-term solvency of Social Security,” Treasury Secretary Timothy Geithner said today in a statement.
The trustees’ annual report also estimated that Medicare’s hospital fund will be exhausted by 2017, two years earlier than predicted a year ago.
The report issued today is the third consecutive one in which Medicare’s trustees have pulled the so-called trigger, a law mandating that the president introduce legislation the following year to protect the program’s financing. President George W. Bush last year proposed that wealthier seniors pay higher premiums for Medicare’s prescription-drug benefit, which Democrats in Congress dismissed as insufficient.
Spending on Social Security is expected to exceed revenues in 2016, one year earlier than last year’s forecast, the report said. The trust fund will need an additional $5.3 trillion over the next 75 years to meet all scheduled benefits, the trustees said. The retirement-assistance program can continue to pay full benefits for about 30 years, the report said.
The government retirement system faces a cash shortfall because the number of retirees eligible for benefits will almost double to 79.5 million in 2045 from 40.5 million this year.
Bush and then-Treasury Secretary John Snow campaigned across the nation for partial privatization of Social Security in 2005, shelving the idea after encountering widespread opposition from Congress and the public.
Obama “explicitly rejects the notion that Social Security is untouchable politically and instead believes there is opportunity for a new consensus on Social Security reform,” Geithner said in his statement.
The administration yesterday raised its estimate of the budget deficit this year to a record $1.84 trillion, up 5 percent from the February estimate, and to $1.26 trillion next year, up 7.4 percent. Next year’s budget will end up at $3.59 trillion, the White House said, compared with the $3.55 trillion it estimated previously.
“The Social Security and Medicare trustees’ report confirms what we already knew: Our nation cannot afford to continue this reckless borrowing and spending spree,” House Republican Leader John Boehner said in a statement. Obama’s policies “are putting our kids and grandkids deeper in that hole, and deeper in debt to China and the Middle East.”
Since the recession started in December 2007, the world’s largest economy has lost 5.7 million jobs, the most of any economic downturn since the Great Depression. The country’s jobless rate of 8.9 percent in April was the highest since September 1983.
“The leading cause for any change in the lifespan of the Social Security or Medicaid trust funds is change in our economy, in a recession,” White House Spokesman Robert Gibbs said today before the reports were released.
The best way to address the problem is to “create jobs to get our economy moving again, to lay the foundation for long- term economic growth, and through that economic growth we’ll see a stronger position for both Medicare and Social Security,” Gibbs said.