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Entitlement Cuts are a Decade Away Unless Congress Acts

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Whenever we read about entitlement cuts or the looming crisis with the Social Security trust fund, we confess to an overwhelming sense of déjà vu. After all, the topic of entitlement cuts and the urgent need to shore up the financial underpinnings of Social Security and Medicare have been in the news for years now, but nothing seems to get done to solve the problem.

As one observer put it, reading these reports about funding problems for Social Security is like watching a slow-motion train wreck.

Recently we’ve seen a spate of articles about entitlement cuts, including this one from CNN, updating the public on the latest Social Security trust fund predictions. We share it here on the Blog in hopes that any of us will reach out to our elected representatives and urge them to get off the dime and make some tough decisions regarding entitlement funding. The CNN article was written by reporter Tami Luhby.

Entitlement Cuts Coming by 2035, Unless…

Luhby begins with a dire prediction. “Social Security and Medicare will not be able to fully pay benefits in just over a decade if lawmakers don’t act to address the pending shortfalls,” she writes. That’s according to reports released last week by the entitlement programs’ trustees.

The 10-year prediction is actually something of an improvement over last year, CNN explains, but the trust funds still remain in what the article calls “dire shape.”

Entitlement Cuts: Slight Improvement but Still Bad News

As Luhby explains, “The combined Social Security trust funds – which help support monthly payments to the elderly, survivors and people with disabilities – are expected to be exhausted in 2035, one year later than previously forecast, according to its trustees’ annual report.”

In practical terms, this means that payroll tax revenue and other income sources will only be able to cover 83 percent of benefits owed, leaving beneficiaries to deal with a possible 17 percent benefit reduction.

“Meanwhile,” Luhby adds, “Medicare’s financial condition improved more. It is expected to be able to cover scheduled inpatient hospital benefits until 2036, five years later than last year’s projection, according toits trustees.”

Entitlement Cuts Will Be a 2024 Campaign Issue

It’s a sure bet, considering the size of the senior voting bloc, that Social Security and Medicare will become hot talking points in this year’s presidential campaign. “Both President Joe Biden and his presumptive Republican rival, former President Donald Trump, have promised to protect Social Security and Medicare, both beloved but endangered entitlement programs,” Luhby says.

About 67 million Americans received Social Security benefits in 2023.

But if you’ve been paying attention, you know that Congress has a habit of putting off tough decisions, even with the latest report from the trustees. “Congress is unlikely to delve into the controversial issue anytime soon,” Luhby writes, “even as the ballooning programs are putting added strain on the federal budget and contributing to rising deficits.”

Entitlement Cuts: The High Cost of Delay

The problem, CNN and others have pointed out, is that the longer lawmakers wait, the fewer options they’ll have.

“Looking solely at the trust fund that covers retirement and survivor benefits, Social Security will only be able to afford scheduled paymentsin full until 2033,” Luhby explains – about the same projection as last year. “At that time, the fund’s reserves will be depleted, and continuing income will only cover 79 percent of benefits owed.”

As the CNN article explains, there’s another fund called the Disability Insurance Trust Fund which is in better shape. It’s expected to be able to cover full benefits at least through 2098. Some have advocated merging the Social Security and Disability trust funds, but that would require an act of Congress. “The combined projection is often used to show the overall status of the entitlement,” says Luhby.

“As for Medicare, its hospital insurance trust fund, known as Medicare Part A, has a few more years before it runs dry,” the article explains. “But in 2036, Medicare will only be able to pay 89 percent of total scheduled Part A benefits, which also cover hospice care, short-term skilled nursing facility services and home health services following hospitalizations.”

Medicare covered 66.7 millionsenior citizens and people with disabilities in 2023.

Presidential Candidates are Already Touting the Issue

According to CNN, immediately after the trustees’ reports were released, the Biden campaign released a statement criticizing what the campaign said were Republican plans to cut Social Security and Medicare. “Biden’s campaign has pointed to a CNBC interview Trump did in March where he referenced that there was a lot one could do in terms of cutting entitlements,” CNN reports.

For his part, presumptive nominee Trump “said he was referring to addressing theft and bad management of the programs and repeated his promise to protect the programs,” Luhby writes.  The Trump campaign did not immediately release a statement on the trustees’ reports.

Neither candidate has yet to release what CNN calls “detailed proposals to address Social Security’s looming shortfall.” Biden’s plan generally relies on selective tax hikes and program savings. Trump has not yet stated his plan.

Entitlement Cuts and the Aging of America

According to CNN, the underlying problem with these critical programs is demographic. “Social Security and Medicare have long been on shaky financial ground, largely because the nation’s population is getting older and living longer,” says the article. “The number of beneficiaries is ballooning, but fewer workers are paying into the programs. Also, health care is becoming more expensive.”

The article calls monthly Social Security checks “a lifeline for many retirees.” Social Security represents about 30 percent of the income for the average American over age 65, but for a large percentage (about 15 percent) of seniors these payments equal 90 percent or more of their monthly income. A benefit cut would be devastating, senior advocates observe.

Entitlement Programs are Not “Going Away”

We’ve seen plenty of articles decrying the fact that Social Security is “going broke.” In fact, in researching this article for the Blog, several major news publications talked about the program’s “going broke date.” But even with benefit cuts, Social Security will still be around.

CNN’s Luhby spoke with Joel Eskovitz, senior director of Social Security and savings at the AARP Public Policy Institute. “Although the programs’ trust funds could become insolvent if lawmakers don’t act, that doesn’t mean the entitlements will cease to exist entirely,” he said.

Eskovitz added, “As long as people are paying into the system and paying their payroll taxes, Social Security will be there. If nothing changes, the program will not pay out 100 percent of the benefit as scheduled. That’s the concern.”

Entitlement Programs are Adding to Ballooning Deficit

Besides helping out seniors, Congress has another reason to act: the financial woes of Social Security and Medicare are making a terrible federal deficit even worse.

“The entitlement programs are also weighing on the federal budget at a time when lawmakers are increasingly concerned about the growth in the federal debt,” says Luhby. “The federal budget deficit will swell from $1.6 trillion this fiscal year to $2.6 trillion in fiscal year 2034, according to the latest Congressional Budget Office outlook.”

Social Security and Medicare have a major impact on the federal budget, CNN explains. Spending on Social Security “is expected to jump from $1.3 trillion in fiscal year 2023 to $2.5 trillion in fiscal 2034, while Medicare outlays will more than double from $832 billion to $1.7 trillion over the same period, according to the CBO.” So a fix would seem to make good economic sense.

Dealing with Entitlements: A Menu of Options

Congress has hesitated to address what the article calls “the thorny issue of entitlement reform” for a long time. But there have been a range of proposals. Some advocate a gradual raising of the retirement age from 67 to 68. Others want to bump up the income threshold for payroll taxes, presently at $168,600.

Raising payroll taxes is often proposed. Currently the tax rate is 12.4 percent, half paid by the employee and half by the employer. But anti-tax conservatives dislike that plan, and some have proposed ways to reduce the growth of benefits, such as means-testing (basing benefits on other income sources). Still, Luhby writes, “few have wanted to press the issue since it’s such a hot-button topic.”

But experts urge Congress to act sooner, because they’ll be able to choose from a wider array of solutions. “They can be phased in. They can be less draconian,” said Linda Stone, senior retirement fellow at the American Academy of Actuaries. “There’s a way to share the burden across more generations.”

As always, we’re keeping an eye on this story here at the Blog and will keep you advised. (originally reported at www.cnn.com)

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