Social Security, Medicare still a drain

Eventual depletion seen without reform

March 27, 2002|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - Long-term tax-revenue projections for Social Security and Medicare improved slightly last year despite a sluggish economy, but both programs remain desperately in need of reform to remain solvent, according to an annual report issued yesterday.

Bush administration officials, acting as trustees of the retirement and health care programs, punctuated their report with urgent calls for action by Congress to cut costs or find new sources of revenue. Otherwise, they warned, the two programs will be huge drains on the federal budget.

Economic productivity "will not solve the size of the problems that we found in the combination of Social Security and Medicare," said Treasury Secretary Paul H. O'Neill, chairman of the board of trustees. "We must and we need to do more soon."

Despite the calls for action, there seems to be little prospect of it on the horizon in this congressional election year.

House Democrats have been encouraged by their leadership to spend their two-week Easter recess attacking Republicans for endangering Social Security. They are complaining, in part, about Bush's use of Social Security and Medicare surplus funds to help finance the wartime budget, contending that this would have been unnecessary if not for the 10-year, $1.35 trillion tax cut Bush sought and won last year.

Despite the last year's economic downturn - worsened by the Sept. 11 terrorist attacks - productivity rebounded so well in the fourth quarter that the 75-year projections for payroll tax revenues were adjusted upward.

Under the latest projections, the payroll-tax-fueled trust fund that helps finance Medicare will be depleted by 2030, a year later than was estimated last year. And the Social Security trust fund is now expected to be able to continue paying full benefits through 2041 - three years longer than was estimated a year ago.

But the costs of the two programs, as they are now designed, would begin to exceed their dedicated tax revenue much sooner.

Medicare, driven by rapidly rising health care costs, will begin to show red ink by 2016, the trustees reported. The cost of paying Social Security benefits, which will grow sharply as the huge generation of baby boomers begins to retire at the end of this decade, will start exceeding tax revenue by 2017.

"It's tempting to focus on the trust-fund exhaustion dates and assume no action is needed for several decades, but that would be a serious mistake," said John L. Palmer, an economics professor at Syracuse University who is one of two public members on the six-member trustee board.

Social Security and Medicare tax money, which is now in surplus and is being used to finance other government programs, will begin to decline by 2010, Palmer said.

Yet many Democrats, who have scored political gains over the years by attacking Republican proposals to restructure Social Security, warn against any rash moves that could endanger benefits to senior citizens.

"Those who claim that the system is collapsing are misleading the public," said Rep. Robert T. Matsui of California, one of the Democrats' spokesmen on the issue. He said the trustees' report showed that there would be enough money available after 2041 to pay 73 percent of promised benefits, and that there was no need for drastic changes in Social Security anytime soon.

Rep. Richard A. Gephardt, the House Democratic leader, is also trying to make Republicans defend Bush's proposals for overhauling the Social Security system by allowing some workers to devote a portion of their payroll taxes to private investment accounts.

Republicans do not want to have to vote this year on such privatization proposals. Democrats say those proposals would inevitably require cost increases or benefit reductions. The president has said he will not seek enactment of a Social Security privatization plan until next year.

But Gephardt says he will try to force a vote on the proposals.

"We think this is an issue that should be debated this year and not swept under the rug for next year, because we think this has real-life consequences for millions of Americans," Gephardt said.

The House minority leader campaigned this week for a Democratic challenger to Rep. E. Clay Shaw Jr., a Florida Republican in a marginal district, who is one of his party's leaders on Social Security reform.

Health Secretary Tommy G. Thompson said yesterday that if Gephardt was serious about a solution to Social Security's problems, he would be working to find a bipartisan consensus.

"But that's not the intention," Thompson said of Gephardt. "The intent is to embarrass and demagogue an issue for the election. Pure partisan politics are being played."

Thompson said he was hopeful that Congress might act this year on Medicare reforms, particularly on providing a prescription drug benefit that many candidates in 2000 told voters they would seek.

However, the White House hasn't yet reached agreement with GOP lawmakers on how much to spend on a drug benefit. The president has proposed $190 billion over 10 years, while the House Republican budget calls for $350 billion over 10 years. The Senate budget, prepared by Democrats, calls for $500 billion over 10 years.

Designing a prescription drug benefit program will be even harder than deciding how much to spend on it. A still thornier issue will be trying to agree on cost-cutting steps for Medicare.

But the trustees' report stressed that no matter how difficult the political problems of dealing with Medicare and Social Security, they cannot be avoided indefinitely or the costs will consume the federal budget.

"With our aging population, we are going to have to devote a growing share of our total economic resources to their support," Palmer said. "The issue is not whether we are going to be doing this, but how."

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