Social Security headed for more trouble

Social Security and Medicare trustees say the financial condition of the government’s two biggest benefit programs deteriorated slightly over the past year.

That assessment on Monday prompted Democrats and Republicans to hurl familiar charges at each other in a repeat of last year’s pitched battle over what to do about Social Security.

Democrats accused the Bush administration of overstating the problems in the two programs as a way of getting Congress to enact draconian benefit cuts, while Republicans said Democrats were refusing to face serious funding shortfalls.

Given the tough talk on both sides, there was little likelihood that Congress will make significant changes in either program before the November elections. Some analysts said they don’t expect major changes before the election of President Bush’s successor.

The annual trustees’ report moved up the date that the Social Security trust fund will be depleted by one year to 2040 and moved up the date that the Medicare hospital insurance trust fund will be depleted by two years to 2018.

The problems in Medicare were depicted as far more serious because of the skyrocketing costs of health care, but the trustees presented a somber assessment of both programs facing the looming retirement of 78 million baby boomers.

The trustees, who include the head of the Social Security Administration and three members of the Cabinet, said long-term growth rates for both programs were not “sustainable under current financing arrangements.”

Treasury Secretary John Snow, chairman of the trustees group, said without action “the coming demographic bulge will drive federal spending to unprecedented levels.”

Bush tried last year to revamp Social Security by suggesting private investment accounts for younger workers, but the idea stalled in Congress, with Democrats blasting the proposal as a hidden attempt to cut future benefits.

Critics on Monday said Snow was overstating the size of the problem and suggested that the problem could be addressed by refusing to go along with Bush’s call to make his first-term tax cuts permanent.

The liberal Center on Budget and Policy Priorities noted that the trustees report estimated that the cost of erasing the 75-year funding shortfall in Social Security was $4.6 trillion in 2006 dollars, while the shortfall in Medicare’s hospital insurance fund was put at $11 trillion. By comparison, the 75-year cost of making Bush’s first-term tax cuts permanent was $13.6 trillion, the center said.

“Instead of renewing his calls for private accounts and making his irresponsible tax cuts permanent, the president should be focusing on erasing the deficit and reining in health care costs,” said Sen. Jack Reed, D-R.I.

Some Democrats pointed to the trustees’ estimate that the monthly Part B premium that Medicare beneficiaries pay to cover insurance for doctors’ visits will rise by around 11 percent next year to $98.20 a month and said they would introduce legislation to cap the annual rise to the rate of overall inflation, which last year was up 3.4 percent.

In this year’s State of the Union address, Bush asked Congress to create a bipartisan commission to study entitlement reform, but the idea has so far attracted little interest in Congress.

Democrats charged that the administration was using the trustees’ reports to try to create an air of crisis to make radical changes in the two benefit programs.

“There is plenty of time to mend rather than end Medicare,” said Rep. Pete Stark, D-Calif.

But the Concord Coalition, a budget watchdog group, said the trustees were highlighting serious problems.

“Social Security and Medicare cannot provide the level of benefits promised without significant retooling,” said Concord executive director Bill Bixby, who said a combination of reduced benefits and additional revenue will be required.

John Rother, policy director at AARP, the retirement group, said, “In the current environment, I don’t see much happening.”

Social Security is currently running a surplus, with more money coming in from taxes than is being paid out in benefits. This will start to change once the post-World War II baby boom generation begins retiring in a few years.

Since the government spends the surplus on other federal programs, the Social Security and Medicare trust funds essentially are government IOUs. To redeem those IOUs to pay benefits, the government must do some combination of increasing borrowing, cutting spending in other areas or raising taxes.

That means that the pinch will occur long before the trust funds are depleted when the cost of the programs exceeds the amount they collect in taxes and premiums each year.

For the Medicare hospital insurance trust fund, that crossover point was projected to occur permanently in 2006. For Social Security, the date that taxes will not cover all benefits will occur in 2017, the trustees said, the same date as last year.

Even after the trust funds are depleted, Social Security taxes will cover 74 percent of benefits in 2040, the trustees estimated.


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© 2006 The Associated Press