Economic Growth Boosts Social Security And Medicare But Funding Crisis Still Looms

Stronger-than-expected economic growth helped boost the financial health of Social Security and Medicare over the past year, though the safety-net programs will still face a funding crisis in about a decade, according to the government’s latest projections.

Federal officials on Monday said they expect Social Security will deplete its combined reserves and run out of money to fully pay beneficiaries in 2035, a year later than projected last year. At that point, if Congress fails to act, the program would have only enough money to pay about 83 percent of scheduled benefits.

The upward revision was fueled by economic growth that exceeded last year’s expectations as well as lower levels of applications for Social Security disability payments. That was partially offset, officials said, by a lowering of long-term assumptions about the fertility rate.

The better-than-anticipated economy also buoyed the financial health of the trust fund that pays Medicare’s hospital bills. The latest estimate finds that those reserves will be depleted in 2036, which is five years later than last year’s projection. Without congressional intervention, the program will then be able to pay only 89 percent of scheduled benefits.

The improved forecasts for both programs don’t eliminate the need for Congress to address the long-term funding issues over the coming decade to avert sudden benefit cuts to tens of millions of Americans who rely on the benefits each month.

“Today’s Trustees reports drive home the fact that the clock is ticking down on automatic cuts to Social Security and Medicare," Michael Peterson, CEO of the Peter G. Peterson Foundation, said in a statement. "It’s actually harmful to promise not to touch these essential programs, because failing to act will mean significant, immediate cuts that affect millions of Americans."

But Max Richtman, president of the National Committee to Preserve Social Security & Medicare, said “Congress must act deliberately, but not recklessly” in response to the latest projections. “A bad deal driven by cuts to earned benefits could be worse than no deal at all,” he said in a statement.

Both the Social Security and Medicare programs pay out more in benefits each year than the dedicated payroll taxes that fund them bring into the government, so the programs dip into reserves to cover the difference. But once those trust funds are depleted, the programs won’t be able to fully pay benefits.

President Joe Biden has sought to make Social Security and Medicare a central election-year issue, accusing former President Donald Trump of wanting to slash the popular entitlement programs. Progressives have urged Biden to campaign on expanding Social Security benefits.

Biden has vowed to block any efforts to cut Social Security and Medicare, and his most recent budget called for increasing taxes on people earning more than $400,000 to shore up the solvency of the programs.

“If anyone wants to cut Social Security and Medicare or raise the retirement age again, I will stop them,” Biden said in his March State of the Union address, a line he’s echoed on the campaign stump.

Earlier this year, Democrats pounced when Trump said there were ways to deal with Social Security “in terms of cutting,” comments that his campaign quickly walked back, saying he does not want to cut entitlements.

Trump has generally bucked traditional conservative orthodoxy in rejecting efforts to revamp the entitlement programs. But other Republicans have taken a different approach. The House Republican Study Committee’s latest budget proposal called for increasing the retirement age for future retirees and lowering benefits for high-earning Americans.

The future of Social Security and Medicare is likely to be debated as Congress turns its attention next year to a series of fiscal fights, including the debt ceiling and expiration of the 2017 Republican tax law.