Today, the Obama administration’s official Bearers of Bad News, fresh off the fun of Swine Flu and Stress Tests, announced that Social Security will deplete its trust fund by 2037, four years earlier than expected. Scarier than that, in 2017 — just eight years from now — Medicare’s hospital insurance trust fund will run out of money. That’s the fund that pays for inpatient hospital services, home health, skilled nursing facilities, and hospice care for those over 65. So, not anything millions of seniors depend on or anything.
Glenn Francis/PacificProDigital.com
Government trust funds are the same as “regular” trust funds. They represent a surplus of income from one party that’s designed to support the life of another party. So, either great-grandpa struck it rich in the hotel business, in which case you start drawing down your ~$30 million trust fund at 18, or great-grandpa paid payroll taxes every month, in which case a trust fund built from that contribution lets Social Security and Medicare provide services after age 65.
When a trust fund runs out for a big government program, it’s the same as when it runs out for a spoiled rich kid. You aren’t instantly broke or on the street, and 2037 will likely be the end of neither Social Security nor Paris Hilton. Money will still come in, but expenditures will be limited to income and to what other people will loan out. So Social Security will still be getting tax income when it runs out of trust fund money, but not enough to cover the number of people expected to be drawing SS in 2037, just as a sudden depletion of available trust fundery (estimated at between $1-$4 million a year) would probably reduce the benefits available in life to Paris Hilton.
Ms. Hilton could probably make up for the lost income by living on her AmEx Black for a while, just like Medicare and Social Security could probably live on government debt for a while — but eventually everyone reaches a limit. Membership has only so many priviledges.
The government has the same options that Paris Hilton does to treat a shortfall: Raise revenue or reduce benefits. Here’s the finding of the Doomsday Club:
[…]
Social Security could be brought into actuarial balance over the next 75 years with changes equivalent to an immediate 16 percent increase in the payroll tax (from a rate of 12.4 percent to 14.4 percent) or an immediate reduction in benefits of 13 percent or some combination of the two. Ensuring that the system remains solvent on a sustainable basis beyond the next 75 years would require larger changes because increasing longevity will result in people receiving benefits for ever longer periods of retirement.
A 53 percent cut in benefits for Medicare. It’s much easier to say that Ms. Hilton should spend less at Hermès than it is to tell seniors that they should consider skipping six months’ worth of medications, or a necessary surgery or, you know, food. So the government’s solution will be the same as Ms. Hilton’s, most likely: Raise revenue. While it’d be nice if the government could make money simply by showing up at a club, right now the only way it’s going to get that money is through an increase on taxes.
Now, who is it that has to say yes to raising taxes? Oh yeah: Congress. If John Boehner’s late-April op-ed in the Washington Times is right, I’d say right now there’s about the same chance of a tax increase being passed by the Senate as there is of Paris Hilton being elected to the Senate. Actually, her chances may be higher. Stranger things have happened in California.
Really, this is an issue that has to go before Congress, and predictions are some kind of Medicare fix will hit the deck this year or next. I can’t imagine anyone voting to cut Medicare benefits by half, but five years ago I couldn’t imagine anyone giving George W. Bush a second term.
So perhaps it’s time to look into a government reality show franchise, before all of our seniors are living very, very simple lives.
SATURN SMITH 