Last week, the federal government warned that unless Congress and the president devise a fix to Social Security within 15 years, every retired American will have their benefits cut by more than 20 percent.
The report by the Social Security and Medicare Trustees shows if Congress does absolutely nothing, by 2035 retirees will receive only 77 percent of their promised Social Security benefits and by 2026 Medicare’s hospitalization program will only afford to pay 89 percent of what has been promised to hospitals.
That has some local residents concerned.
“It’s at risk of running out for following generations and I think it’s in trouble. For my children and my grandchildren, I worry about them and I worry about their children,” said Mike Manning, a 73-year-old retired Air Force officer from the Dayton area.
Manning didn’t retire hoping to live off Social Security. Generations approaching retirement today have to build their own funds and not rely on the social services, he said.
“The original reason to have Social Security and Medicare for seniors was to make sure when people are older they wouldn’t be destitute. Too many people are thinking that’s their retirement,” Manning said.
But others like 53-year-old nurse Connie Arbuckle of Dayton who hopes to retire at age 67, said citizens are owed what they paid and these programs should have never been used in the first place because now the government is making interest on funds that individuals could be gaining by putting the money in their 401k’s or other bank accounts.
“That’s the most important money because we already paid into it. It would be different if they’re just giving us government money or something, but it’s our money,” she said.
While it is worrisome for herself and her children, Arbuckle said the government will have to figure it out and she hopes President Donald Trump will be re-elected to find a solution before it becomes a serious problem, she said
“It’s a certain inevitability much like an avalanche gaining strength and rolling downhill,” said Robert Bixby, executive director of the Concord Coalition, a non-partisan Washington organization which pushes for balanced budgets.
No action from either party
Neither political party is showing any willingness to devise the tough compromises that budget analysts say are absolutely necessary to keep Social Security and Medicare solvent.
President Trump told reporters last week the government needs to “get back to cutting taxes,” while during a series of CNN town hall meetings Democratic presidential candidates were competing with one another for new spending plans to reduce the burden of student debt.
“We are in a moment where none of our political leaders are willing to do things that are hard,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington. “We have a political class so focused on beating the other team up that they are no longer tending to the crucial priorities of the nation.”
Rather than fixing Social Security, the two parties are offering what MacGuineas calls an “Alice In Wonderland World of free lunches,” at a time when the non-partisan Congressional Budget Office projects the government will add $11.6 trillion of fresh debt during the next decade.
“It is certainly true that before we add new programs or cut any taxes, we already are on a fiscally unsustainable path,” said Michael Peterson, chief executive officer of the Peterson Foundation in New York.
“We will have a $1 trillion deficit as early as next year and deficits will increase every year (after). That is the definition of unsustainable.”
Some say fears exaggerated
Others suggest the fears are exaggerated. Dan Adcock, a lobbyist for the National Committee to Preserve Social Security and Medicare said “we don’t see it as a crisis. Certainly something has to be done before 2035 and it would be better if we did something sooner rather than later.”
“The problem with labeling this as a crisis is it could force us into a position where we have to accept a deal that is bad for the growing number of Americans who depend on Social Security for all or most of their retirement incomes,” Adcock said.
Adopted in 1935, Social Security is financed through a 12.4 percent payroll tax on wages, half paid by the worker and the other half by his or her company. The government does not apply the tax for annual earnings greater than $132,900.
Medicare, which covers health costs for the elderly, is financed by a 2.9 percent tax on earnings — equally divided between worker and employer.
Medicare poses the more daunting financial challenge in part because its burden will continue to skyrocket as long as health costs increase faster than inflation.
By contrast, the financial solutions to Social Security are relatively straight forward – higher taxes, restraining the program’s growth rate or a combination of both. But that is where any agreement ends.
Both parties at odds on how to fix the problems
Republicans oppose raising the payroll tax while many Democrats reject restraints in the growth in Social Security, such as raising the retirement age or eliminating annual cost of living increases.
Instead, Sen. Sherrod Brown, D-Ohio, wants to impose payroll taxes on families earning more than $250,000 annually, saying “the place to start is not cutting the benefits workers have earned … “it’s looking at why Ohioans who make $50,000 a year are paying Social Security taxes on 100 percent of their income while millionaires and billionaires are not.”
Last December, however, the CBO calculated that imposing the payroll tax on earnings greater than $250,000 only extends the solvency of the Social Security trust funds to the year 2044.
“Everybody needs to take a deep breath and sit back and look at the reasonable options for reforms,” said Bixby. “You cannot approach this (by saying) it has to be all spending cuts or all tax increases.”
Adcock’s organization supports taxing all earnings above $132,900 and raising the Social Security payroll tax to 7.4 percent for workers and 7.4 for their employers, a move he said would extend solvency for 75 years.
The divisions between the two parties and the political atmosphere is so toxic, many analysts fear that Congress will wait until the eleventh hour to devise a solution.
“The general sentiment is a compromise will probably happen in 2034,” said Christian Weller, a senior fellow at the left-leaning Center for American Progress, a non-profit organization in Washington.
“At the time the trust funds are exhausted, politicians will have to sit down and negotiate a solution rather than telling people they will get 80 cents on the dollar,” Weller said. “That’s probably political suicide.”