Inconvenient Truths

Here’s the good news: Last year, Social Security spent $75 billion more than it took in. How is that good? It’s good in comparison to Medicare’s unfunded liabilities that exceeded $48 trillion, up $5.2 trillion from last year.

The dishonest distraction from both Democrats and Republicans of “demagoguing” entitlement programs like Social Security and Medicare and scaring the bejesus out of senior voters should be reason enough to disqualify any candidate running on that message, writes Michael Tanner, senior fellow at Cato Institute. Here Mr. Tanner lays out the “inconvenient truths” about the undeniable crisis our country faces.

Unfortunately for those candidates, the trustees for those troubled programs just injected some inconvenient truths into the debate.

Start with Social Security. Last year, the program spent $75.6 billion more than it took in. This year’s gap is expected to be more than $80 billion. This cash-flow shortfall is being covered by interest payments on the bonds in the Social Security Trust Fund.

Soon the interest payments will not be enough, and Social Security will have to make up any shortfall by redeeming bonds from the Social Security Trust Fund. But the Trust Fund holds no actual assets — it’s only government bonds held by the government itself, essentially an accounting measure of how much the system is owed out of general revenues. Thus, when the Social Security system redeems bonds in order to cover its deficit, the money to redeem them. like today’s interest payments, comes from general revenues, meaning that it simply increases our annual budget deficits and growing national debt.

This accounting gimmick will be irrelevant anyway after 2033, when the Trust Fund will be exhausted. By then, Social Security will have redeemed $2.8 trillion in bonds. Of course, you may have noticed that the federal budget doesn’t really have $2.8 trillion to spare.

From there on out, Social Security’s unfunded liabilities top $24.9 trillion. Add that to the $2.8 trillion needed to redeem the Trust Fund, and Social Security is running roughly $27.7 trillion in the red. That’s $1.8 trillion more than last year. It’s not getting any better, folks.

Yet Social Security’s finances actually look pretty good compared with Medicare’s. According to the trustees, Medicare’s Trust Fund will run a deficit this year as it has for the last six years. The program may briefly return to solvency next year, as a result of Obamacare tax hikes, but will be running deficits again by 2021.

Medicare’s Trust Fund will remain technically solvent until 2030, which represents a four-year improvement over last year’s projection. But, as we saw with the Social Security Trust Fund, this is a meaningless accounting measure that doesn’t affect the nation’s overall finances. The program’s total unfunded liabilities exceed $48.1 trillion, an increase of $5.2 trillion since last year’s report.

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Debbie Young

Debbie, editor-in-chief of Richardcyoung.com, has been associate editor of Dick Young’s investment strategy reports for over three decades. When not in Key West, Debbie spends her free time researching and writing in and about Paris and Burgundy, France, cooking on her AGA Cooker, and practicing yoga.