We all know there are problems looming in both programs so yesterday’s annual press release, or announcement, concerning future shortfalls should come as no surprise. Treasury Secretary Henry Paulson basically stated that Social Security will only be able to pay 78% of benefits by the year 2041. Medicare comes sooner with a payout of 78% by 2019, 11 years from now. This makes me wonder how on earth the government can afford a National Health Program as proposed by the Democratic Presidential hopefuls.
The more imminent problem with Medicare has been created by runaway health care costs that we all know about. There are some interesting numbers put out by Paulson; Medicare payroll taxes will have to increase by 3.54% to maintain the current Medicare system for the next 75 years. The payroll tax will have to increase by 1.7% to maintain the current level of Social Security benefits for the next 75 years, or reduce benefits by 12%. Combined that is a 5.24% increase in taxes or a 5.24% pay cut, depending on your point of view. That is political suicide so it isn’t going to happen. With the current inflation rate running at 2-3%, meaning Social Security increases going up by that amount each year, we would need to work 4-6 years longer to offset that 12% decrease in pension benefits. Thats not going to happen either.
The numbers will get worse as each year goes by and Washington does nothing. Ultimately they will act and probably go for some tax increase and some benefit reduction. I’m guessing they will stagger the benefit reduction so that current retirees are grandfathered into the current payment scheme and the youngest workers will get the maximum benefit cut. The logic will be younger people have more time to plan for the changes’. The income tax increase will be shared by all, but the exact percentages will be determined by who has the power in Washington. In my opinion Democrats will tax people higher up the food chain and Republicans will lean towards benefit cuts. You can pick your poison but it is clear this year’s Presidential election is extremely important to anyone who cares about these issues.
