Annual Bell Has Privatizers Salivating

Social Security's 2006 report confirms that we only need to adjust the program slightly. Medicare is the real problem.

| Mon May. 2, 2005 12:00 AM PDT

Article created by the The Century Foundation.

The Social Security Trustees have released their annual report on the state of the system. It presents a forecast similar to last year, but very slightly worse. If nothing is done in the next 34 years to adjust Social Security benefits and taxes, the system will be unable to meet its full obligations after 2040.

Predictably, opponents of public programs have seized on this opportunity to cry wolf. Engaging in some of their most creative accounting moves to date, the Heritage Foundation reports that the Social Security system not only needs to pay its promises of future benefits, but that it must come up with the money that the federal government will need to repay Social Security for the accumulated Social Security surpluses of the past two decades. This is as if a bank asked its depositors to figure out how the bank should meet its obligations to those depositors.

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No matter how much the opponents might wail and wring their hands over the future burden of Social Security, that burden does not add up to much. Social Security will grow from about 4.3 percent of our total income today to about 6.3 percent, once and for all, as the baby boomers retire and the population grows older.

The simple arithmetic of an aging population is that old people will need a slightly bigger share of the pie if they are to avoid poverty. With an economy that grows at 2 percent per year in a good year, it should not be a big burden to come up with the resources needed to preserve the Social Security safety net. After all, the money we already have spent waging war against Iraq would cover the bulk of the deficit of Social Security over the next 75 years.

In order to really scare people, critics of Social Security almost invariably lump it together with Medicare when they present doomsday scenarios. This is an understandable tactic: the funding problems of Social Security are eminently manageable, while those of Medicare are indeed entirely unmanageable. Simple extrapolations of cost show Medicare voraciously gobbling up the nation’s resources.

What the critics of Medicare neglect to point out is that the problem is not the metastasis of the Medicare program but of health care costs throughout the economy. Businesses, families and government all are staggering under the growing burden of health care costs. To identify this as a public finance problem is like treating the problem of substance abuse as if it were a problem of public sector employee absenteeism. We certainly do face a public sector problem of future financing for Medicare. It is part of the society-wide problem of uncontrolled growth of health care costs.

So the latest report of the Social Security Trustees delivers no news we did not expect. It reinforces the conclusion that we are not facing a crisis in Social Security financing. Rather, we face the problem of coming up with about 2 percent of our GDP over the next 34 years to add to the resources flowing to Social Security, so that tomorrow’s bigger population of old people can have a standard of living similar to that of today’s old people. The report also highlights the fact—seen through the window on Medicare—that the cost of health care is spiraling out of control.

We can be sanguine about Social Security. All that is needed is to adjust the program slightly to accommodate the aging population. Medicare is a real problem, but the solution lies not in withdrawing publicly guaranteed medical insurance from old people but in reforming our entire health care delivery system.

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