WASHINGTON – A new report on the financial health of Social Security (search) changed the numbers only slightly and the terms of the political debate even less so.
The trustees who oversee the government retirement program said Wednesday that Social Security will begin paying out more in benefits than it receives in payroll taxes (search) in 2017. That means the government at that point will have to increase its borrowing on financial markets, raise taxes or divert money from other government programs to sustain Social Security at current levels.
The trustees also estimated in their annual report that the program, which is about to be inundated with baby boom retirees, will go broke in 2041. That's the date, the trustees said, that the $1.6 trillion accumulated in trust accounts from excess payroll taxes over past decades — really just IOUs because the government already has spent the money on other things — will dwindle to zero from sending out monthly benefit checks.
While both the 2017 and 2041 estimates moved up by a year the dates that had been forecast previously, both sides in the current political debate over Social Security seized on the update with familiar arguments.
The Bush administration said the report underscored the urgency of its effort to overhaul Social Security this year, in part by creating retirement investment accounts for younger workers. Democrats said the report undercut the president's efforts to portray the program as in immediate crisis.
"The numbers leave nothing to doubt about the financial condition of the Social Security system," Treasury Secretary John Snow (search), chairman of the six-member trustees' board, said at a news conference shortly after the report was released. "The report underscores the fact that we need to do something."
The Club for Growth, a conservative think-tank, agreed. "It's just common sense to change the ship's course before it hits the iceberg," the group's president, former congressman Pat Toomey, said in a statement.
Senate Democratic leader Harry Reid of Nevada said the report "confirms that the so-called Social Security crisis exists in only one place: the minds of Republicans."
Reid again took issue with the president's proposal to allow younger workers to invest up to 4 percent of their wages subject to Social Security taxes. The senator said putting that plan into law would make the Social Security trust fund insolvent in 2030, some 11 years earlier than the trustees projected.
Labor leaders, who have opposed the changes, sided with Reid.
"There is no need to rush into a reckless scheme to divert trillions of dollars out of the Social Security trust funds and into private accounts," said John Sweeney, president of the AFL-CIO. "Let's take the time to get it right."
Virtually ignored by both sides were the findings of a separate report from the trustees, also updated annually, that said Medicare, the health care program for the elderly and disabled, began paying out more in benefits than it received in taxes as of last year. The trustees also predicted Medicare would go broke in 2020, one year later than they estimated in 2004, but still more than two decades ahead of Social Security.
The trustees estimated that the premiums Medicare beneficiaries pay for doctor visits would increase about 12 percent next year, from $78.20 a month now to $87.70 in 2005. This year's premiums are 17 percent above what they were in 2004.
The trustees said Social Security's unfunded obligations would total $4 trillion over the next 75 years, an increase from last year's projection of $3.7 trillion.
Bush has said he will not raise the current 12.4 percent payroll tax to deal with the financial problem. He has said he would consider raising the $90,000 cap on income that is subject to the payroll tax.
In the report, the trustees said of proposed changes, "The sooner adjustments are made, the smaller and less abrupt they will have to be."
The report said in 2041, the new date for Social Security's insolvency, payroll taxes will generate enough income to cover 74 percent of benefit payments. That is a slight increase from last year, when the trustees estimated that 73 percent of benefits would be covered in the year that the trust fund went broke.
For Medicare, the trustees estimated that taxes would be sufficient to cover 79 percent of the program's cost in 2020, when the Medicare trust fund is exhausted. Last year, when the insolvency date was projected to be 2019, tax income was estimated to be sufficient to pay 81 percent of the program's costs.
Social Security provides retirement, survivors and disability income for 47.6 million Americans. Medicare provides health care for 41.7 million older and disabled people.