Social Security And Medicare Finances Worse Than Thought Rec

Thursday, May 14,2009, 9:38:04 AM Click:

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Investor's Business Daily

May 13, 2009 Wednesday NATIONAL EDITION

SECTION: Front Page News; Pg. A01

LENGTH: 561 words

HEADLINE: Social Security And Medicare Finances Worse Than Thought Recession Hits Payroll Tax Retirement program faces cash-flow negative in '16; health plan already there

BYLINE: JED GRAHAM

The recession's toll on payroll tax revenue has sped the day of reckoning for long-untouchable entitlement programs, the annual report of the Social Security and Medicare Trustees confirmed Tuesday.

Social Security, after more than three decades of providing extra cash to the rest of the government, is now expected to become a drain on the budget by 2016, one year earlier than in last year's report.

Because of Social Security's legal status, negative cash flow won't immediately jeopardize benefits. The same holds for Medicare Part A, which turned cash-flow negative in 2008, as payments exceeded revenue from its 2.9% payroll tax by $21 billion.

The trustees also showed that the programs' legal claims to future government revenue also is eroding fast. Medicare's Hospital Insurance Trust Fund is now on a path to be depleted by 2017, two years earlier than projected a year ago.

Social Security's trust fund is due to run dry in 2037 -- four years earlier than forecast in 2008. The disability program's depletion date was moved up six years to 2020.

Though these trust funds don't hold any actual funds, their legal depletion dates are significant: Unless Congress passes a law to keep funding these programs beyond their dedicated taxes, benefit payments would have to fall.

As the legal window for tackling entitlement reform begins to narrow, the political and budget pressure to grab hold of these "third-rail" programs also is growing.

In a speech last week, House Majority Leader Steny Hoyer endorsed the idea of a commission to propose entitlement reforms, saying that Social Security reform provides "an immediate chance to take pressure off of the budget."

Medicare and Social Security costs equaled 7.6% of GDP in 2008, but that is projected to hit 10% of GDP by 2020 and 12.5% by 2030.

House Speaker Nancy Pelosi is reportedly opposed to a reform commission that would give Congress an up-or-down vote -- the same approach that has been applied to military base closings. But Hoyer suggested a compromise that would let Congress amend any package, provided the bottom-line savings remained fixed.

On Tuesday, Treasury Secretary Timothy Geithner said that "after we have passed health care reform," President Obama will turn to Social Security.

"The president explicitly rejects the notion that Social Security is an untouchable politically and instead believes there is opportunity for a new consensus on Social Security reform," he said.

Geithner reiterated Obama's view that broad Medicare savings "can only be achieved in the context of a larger effort to control health care costs and improve quality more generally."

However, Obama's big domestic agenda will contribute to huge budget deficits as the entitlement crisis builds.

Social Security reform defied the best efforts of Presidents Clinton and Bush. Political opposition to broad-based sacrifice shouldn't be underestimated. But on Tuesday, there was broad support, at least publicly, for an undefined call to reform Social Security.

"Social Security has a long-term solvency challenge that must be addressed, and the sooner we face this challenge, the easier the options for long-term reform," said AARP Executive Vice President Nancy LeaMond.

House GOP Leader John Boehner called for fixing Social Security and Medicare: "Congress can't sit idly by while these programs go bankrupt; we must act now."