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It's conventional wisdom that Social Security and Medicare are headed for bankruptcy. The reality of the situation is more more ambiguous. (More below the fold.)
As Paul Krugman notes:
It’s probable (although not certain) that, within two or three decades, the Social Security trust fund will be exhausted, leaving the system unable to pay the full benefits specified by current law. So the plan is to avoid cuts in future benefits by committing right now to ... cuts in future benefits. Huh?Digby has written a fantastic post summarizing the apparently counter-intuitive argument that we don't really have to panic right now about something that may or may not happen in twenty years.
I think the confusion partly stems from the fact that people are under the misapprehension that the system is going to go bankrupt in a couple of decades and so it might make sense to them to take some bad medicine now in the hopes that there will at least be something there in 2035 or so. But that's simply not the case. The social security system is solvent, it's just that in a couple of decades they project that we will have exhausted the extra money the baby boomers have been contributing since 1983 for the trust fund (they'll all be retired) and there will be a little bit less coming into the system through the payroll tax than will be going out in benefits. This means that if we simply never look at the numbers until the day that happens we could potentially have to cut benefits by some number yet to be decided.As Duncan Black (aka Atrios) wrote in USA Today a couple of weeks ago:
Imagine if that is how we treated defense spending. Since it appears budgets will be tight in the 2030s, best to mothball all those aircraft carriers today. Who would buy that argument?James Surowiecki made a similar argument in The New Yorker recently:
The reality is that we will make our defense decisions about the 2030s in the 2030s. That's just how we should treat federally financed retirement programs. We never actually have to cut benefits if we make the policy choice to keep funding them.
Social security is only bankrupt to the extent that our political leaders lose the will to invest in a decent retirement for American workers.
Projections show that, owing to an aging population and rising health-care costs, the Medicare Trust Fund will become insolvent in 2024 and Social Security in 2033. The image of empty coffers is a powerful one: half of all Americans aged between eighteen and twenty-nine don’t think that Social Security will exist when they retire. That’s a bizarre thing to believe about an important government program. No one ever says, “I don’t think the U.S. Army will be there when I get old” or talks about the Defense Department “going broke.” We assume that there will always be a need for the military, and that we’ll end up paying the taxes that are necessary to fund it. But, because Social Security and Medicare have always been self-supporting, it’s easy to believe that they’ll just vanish if the trust funds dry up. This isn’t the case. Relatively minor tweaks to Social Security will allow it to keep paying full benefits for many decades. And, if we wanted, we could supplement funding for both programs with general government revenue. That’s what most European countries do, and, indeed, parts of Medicare are already paid for out of general revenue. The only way that Social Security and Medicare can go “bankrupt” is if we let them.As Digby says, the political establishment "seems to have embraced the notion that this wealthy nation can no longer afford for its elderly population to live in dignity." And that's just B.S.