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Outlook Weakens for Social Security, Medicare

Both trust funds to be exhausted earlier than predicted

In 2010, Social Security's expenditures exceeded tax revenues for the first time since 1983. Experts say the gap will grow substantially as the huge boomer generation retires and causes the number of beneficiaries to swell.

Still, the latest report showed that the Social Security trust fund assets increased by $69 billion last year to $2.6 trillion, thanks to interest income.

Rep. Xavier Becerra of California, the top Democrat on the House Social Security subcommittee, said he was confident the government program "would pay workers the benefits they have earned for many years to come."

Insurance protection

"Over the last 75 years Social Security has survived 13 recessions and kept its promise to pay earned benefits to our seniors, disabled workers, widows and children on time and in full," he said in a statement. "You simply can't buy the kind of retirement, disability and life-insurance protection on the private market that Social Security provides."

But with Social Security expenditures projected to rise by about 50 percent between 2008 and 2030, Eric Toder, codirector of the Urban Institute's Tax Policy Center, says lawmakers will have to raise taxes and cut programs to finance the program well into the future. "This program is not sustainable over the long run," he says.

Controversy has swirled around proposed changes to the Social Security program in recent years. Melissa Favreault, senior fellow at the nonprofit Urban Institute and an expert on Social Security issues, says hiking the cap on earnings subject to the payroll tax (currently $106,800) is one idea to boost revenue that's getting much attention.

Other suggestions include:

  • Increasing Social Security payroll taxes on all workers, not just those earning higher wages.

  • Subjecting more forms of income, like contributions to medical spending accounts, to the payroll tax.

  • Raising the retirement age to collect benefits.

  • Reducing cost-of-living adjustments by changing the measures used to track inflation.

"The sooner we act, the more possible it would be to distribute the cost of the shortfall across generations," she says. "If you wait too long, the boomers' kids and their kids will bear big changes."

The Board of Trustees comprises six members. Four serve by virtue of their positions with the federal government: Timothy F. Geithner, secretary of the Treasury and managing trustee; Michael J. Astrue, commissioner of Social Security; Kathleen Sebelius, secretary of Health and Human Services; and Hilda L. Solis, secretary of Labor. The two public trustees are Charles P. Blahous III and Robert D. Reischauer.

Carole Fleck is a senior editor at the AARP Bulletin.

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