How safe are the Social Security and Medicare Trust Funds? Some say that Social Security is fully funded and that the program will be able to pay benefits in full until 2037. On the other hand, TSCL believes that without changes to trim federal spending, and soon, funding to pay the benefits of seniors and the disabled is not at all certain. “D” Day for Social Security and Medicare recipients, may come as early as March 31st — or when the federal budget hits the “debt limit” some time this spring.
The federal debt limit refers to the amount of debt our nation is legally allowed to borrow, now at $14.3 trillion. In order to avoid default on the bonds or IOUs held by the public and Trust Funds, including those held by Social Security and Medicare, Congress must choose between raising the debt limit, significantly cutting spending, raising taxes or some combination of all three.
Last year for the first time since 1983, the Social Security Trust Fund that pays retirement benefits began to pay out more than the program received in cash revenues. The Social Security Disability Trust Fund and the Medicare Hospital Insurance Trust Fund were already in deficit. The amount of cash revenues that the programs receive has been significantly reduced by the recession and record high unemployment.
In years when more taxes are received than needed to pay benefits, the U.S. Treasury uses the excess payroll taxes to cover other government spending. The Treasury issues special non-marketable bonds to the respective Trust Funds, which represents IOUs. When Social Security or Medicare don’t receive enough cash to pay benefits, as is happening now, the Treasury must redeem the IOUs from general federal revenues.
If Congress takes no action and the federal budget runs out of cash by hitting the debt limit, Social Security and Medicare payments could be reduced or even suspended according to U.S. Treasury Secretary Timothy Geithner. Budget experts say that any agreement to raise the federal debt limit must also include a plan to get federal spending under control.
TSCL lobbies to protect Social Security and Medicare benefits and opposes deficit reduction proposals that would cut COLAs and significantly increase Medicare costs that seniors pay. But TSCL also believes that the consequences of allowing the federal debt to swell, without a plan to bring our federal budget back into balance, would result in much graver economic consequences for seniors in the future.
How do you think Congress should cut the deficit? TSCL is conducting an online senior survey and wants to hear from readers. Visit www.SeniorsLeague.org or call 1-800-333-8725 for more information.
Sources: “Raise Debt Limit to Avoid National Catastrophe,” Lori Montgomery, The Washington Post, January 6, 2011. “New Calls on GOP Side Not to Lift Debt Limit,” Elizabeth Williamson, The Wall St. Journal, January 18, 2011.