Wednesday, March 26, 2008

Social Security, Medicare report raises alarms; Could S.S. benefits really be cut for current retirees?

Today, we expect a major report on the Social Security and Medicare trust funds. The Investors Daily newspaper has a front page newspaper story by Jed Graham: “Medicare to start running out of cash as major cash hikes, benefit cuts loom; Social security also shaky; Entitlement programs could cost 12.3% of GDP by 2030 without reforms.”

The link is this:
I won’t give the active hyperlink because McAfee SiteAdvisor flagged it, but I believe it is a “false positive.” The visitor can paste the URL into the browser and read his own security package’s report and instructions for viewing. (Or try later, when the problem may get resolved.)

45% of Medicare revenue will come out of general revenue by 2015.

The Social Security Trust Fund runs out by 2041. Those reserves were $2.2 trillion at the end of 2007. Medicare runs out in 2019.

The government would be able to pay only 78% of expected benefits when the fund runs dry. The article suggests the possibility of a FICA tax hike from 12.4% up to 15%, and the possibility of cutting benefits, even for some current retirees, up to 18%. That would be politically dicey. It also raises “moral hazard” questions about decisions that individual people make, accepting large buyouts from the employers to leave early and then take long “time-outs” to plan second careers, as I did.

One issue is longer life spans. This is a particular problem if people live longer while frail and needed care. That is why the “lower birth rates” get cited by social conservatives as an issue. But a low birth rate could be desirable if seniors could actually work into their 80s without creating extra health care expenses, and if employers welcomed them, without setting aside “special programs” for seniors, as AARP does. Removing health care from the employment area and funding it separately could help seniors keep working longer.

There is a similar Wall Street Journal story on p A3 by Tom Barkley and Jane Zhang, “Alarms Sound Anew Over Social Security, Medicare,” and “How’s Social Security, Medicare?” link here.

Picture: See what you can make out in the side view mirror. "Government is the problem." (Ronald Reagan).

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