The Social Security and Medicare Boards of Trustees released their annual financial review yesterday, finding that over the next 75 years the two programs have promised to pay out $42.9 trillion more in benefits then they have scheduled to take in. Numbers this large and time frames that long can make the problem seem unreal, but the threat to our nation’s financial health is real and imminent. Consider:

  • Medicare’s hospital insurance trust fund will pay out more in benefits than it received in taxes and other dedicated revenue this year.
  • Within the next five years, general revenue transfers are expected to constitute the largest single source of income to the Medicare program.
  • Medicare’s annual costs are already 3.2% of GDP and will be 11% of GDP by 2082.
  • Social Security will begin to pay more in benefits than it receives in taxes in 2017.
  • Starting in 2010, the roughly $80 billion in annual Social Security surplus that Congress currently spends every year will begin to shrink. From that point on, Congress will have to replace that revenue stream with higher taxes or reduce overall spending.
  • In just 12 years, today’s $80 billion annual Social Security surplus will turn into a $75 billion annual deficit — a $150 billion swing.

Treasury Secretary Hank Paulson said yesterday, “The facts are clear: the sooner Social Security and Medicare are reformed, the fairer reform will be to future generations.”

Medicare presents the greatest challenge to Congress and taxpayers, accounting for $36.3 trillion of the $46.9 trillion 75-year projected shortfall. Congress should take both short- and long-term approaches to solving the Medicare crisis. In the short-term, Congress should start by limiting taxpayer subsidies to wealthy beneficiaries in Medicare Part B and extend the Medicare Part B income-related premium rules to Medicare Part D. In the long-term, Congress should transform the entire system to a defined-contribution model similar to the Federal Employees Health Benefits Program.

Quick Hits

  • A Harvard study shows that intense U.S. media coverage of doubts about continued U.S. presence in Iraq have a measurable “emboldenment effect” on insurgents there.
  • Legal scholars are beginning to challenge whether the health care plans proposed by liberal presidential candidates are constitutional.
  • A controversial movement that argues global warming will play a much smaller role in unleashing planetary havoc than most scientists think is growing. The dissident scientists argue that “instead of spending trillions of dollars to stabilize carbon dioxide levels across the planet — an enormously complex and expensive proposition — the world could work on reducing hunger, storm damage and disease now, thereby neutralizing some of the most feared future problems of global warming.”
  • Facing the reality that current mandates are not technologically feasible, the California Air Resources Board will consider relaxing rules on automakers to produce vehicles that release no air pollution and instead encourage them to make more low-emissions vehicles.
  • The New York Times reports that “most of the rest of the world views the idea of punitive damages with alarm,” arguing that “it is not fair … to give plaintiffs a windfall beyond what they have lost. And the ad hoc opinions of a jury … are a poor substitute for the considered judgments of government safety regulators.”