As initially designed Social Security & Medicare is about as crunchy as a social plan can be: the original design is a ring fenced, self funding system.
BUT
What is going on in the pool (the trust fund)?
The pool has been drained: according to the Medicare Trustee report, April 2020, if the Social Security and Medicare trust funds (Medicare part A – that element of Medicare which was designed to be funded by payroll taxes paid into a trust fund) were fully funded, there would be $75,000 per US resident in the pool – but in fact there is only $8,840: the pool’s not there (nor the tree), there is a puddle – it’s all a mirage.
The “Social Security & Medicare trust funds” are a misnomer: they have never been managed as trust funds recognizable as such in the world outside the federal government. The plans have been corrupted, almost from the start, by the way they have been managed: past benefits paid out have been too generous, relative to contributions; or the investment return that the fund was set up to make was too low to enable the fund to meet its future obligations.
Whichever – whether past benefits too generous, or returns on the investment too meager (that return was being paid by taxpayers in the past and today) – the country/we, its citizens, have benefited from the fact that the pool is now empty: we (collectively) have already spent what should be there.
There was a ring fence there, but it has been trampled into the ground long ago and Social Security & Medicare are – in substance – pay as you go plans: Americans are paying taxes into the government (some of which are called ‘payroll taxes’); government is paying welfare benefits to retired Americans.
The bad news is that demographic forces are causing the cost of long promised retiree benefits to accelerate – the baby boom generation (born 1946 to 1964) is numerous, healthy (long-lived), and retiring/drawing benefits now and for the next 40 years:
Or, perhaps more useful, per US resident of ‘working age’:
The cost of Social Security and Medicare per working age American goes up about 50% this decade. 40% of Americans rely on Social Security for their retirement and make no other significant provision. This is serious.
What have the political parties said about so serious an issue confronting the country?
Very little (!).
The Democratic Party has published its 2020 Policy Platform.
Policy is to preserve social security, addressing funding by raising taxes on higher incomes – not clear how much/math was fuzzy (predictable but disappointing); Medicare policy is subsumed into a policy to provide universal healthcare – no math there either.
President Trump has said (e.g. on 6/20/20) he will ‘stand behind’ social security and Medicare (what does ‘stand behind’ mean exactly?).
The Republican Party has defaulted its 2020 Policy Platform to its 2016 Policy Platform: that document speaks of the need to grapple with Social Security insolvency and to phase out Medicare benefits as they exist and replace the current arrangements with catastrophic coverage and, otherwise, with needs based benefits. Directionally interesting but the devil is in the detail. We have had four years to hear more on that …. crickets.
A cross aisle coalition of Senators and US Representatives, led by Senator Mitt Romney, is taking on this issue in promoting what it has called the TRUST (Time to Rescue US Trusts) Act. The premise of the initiative is that the trusts are still there: Crunchicrant argues (above) that, regrettably, the trusts have long been breached into oblivion and there is nothing to rescue. That said, it is welcome that some attention is being paid and Crunchicrant will keep an eye.
Any candidates for office should be asked their position on Social Security/ Medicare , including the what (specifically whether the real value of benefits implicitly promised will be maintained – and if not, how that promise should be stepped down), and the how (as in: ‘how will it be paid for?”). A candidate who has signed ‘Americans for Tax Reform’s Taxpayer Protection Pledge’ has already decided that benefits should be cut (but has likely not shouted this about; time to extract the details of those cuts).
Be clear:
-if retirement benefits to be maintained, taxes MUST rise (by a lot – by 30 to 35%).
-if taxes are to be held steady, retirement benefits MUST be cut (by a lot – by 40 to 50%).
