Social Security Expected Insolvent by 2034…What Then?: Amidst rising inflation and national debt, the prospects of Social Security and Medicare running out of funds is a more important consideration than ever – and those prospects are very real.
In an annual report submitted late last year, the Social Security Board of Trustees revealed that the finances of both of these programs were “significantly affected by the pandemic and the recession of 2020.”
COVID Recession Worsened Already Troubling Future for Medicare
With millions of people out of work in 2020, both programs saw a dramatic reduction in Social Security payroll tax revenue. Former President Donald Trump at one point floated the possibility of canceling payroll tax revenue temporarily, an idea that was criticized by Democrats as putting Medicare and Social Security at risk.
While the COVID pandemic and lockdowns worsened the problem, the projections for Medicare were revealed to be about the same as last year’s report. The trust fund that pays for Medicare Part A, which provides coverage for nursing home and hospital costs for senior citizens, is projected to run out by 2026.
Medicare Part B, which covers the cost of outpatient care and treatment by doctors, will survive as a result of legislation that requires automatic government financing.
What Happens After Insolvency?
Once Medicare Part A becomes insolvent by 2026, only 91% of promised benefits can be paid for by this trust. While Medicare Part B is safe, it means that senior citizens who depend on Medicare coverage may not be able to access the nursing home care they need in old age or may face large debt for hospital care.
Several options are on the table for Congress to stop Social Security from going insolvent, and none are likely to make the incumbent government popular. A 2021 paper from the Congressional Research Service revealed two main scenarios – the cutting of benefits and the raising of taxes.
“If the trust funds were allowed to run out, Congress could eliminate annual cash-flow deficits by cutting benefits so that spending equals tax income on an annual basis. According to the trustees, achieving annual balance would require benefit cuts of 22% in 2034, the first year of insolvency, rising to 26% by 2095. 45 To maintain balance after 2094, the Social Security trustees project that larger benefit reductions would be needed, because people would continue to live longer and therefore collect benefits for longer periods,” the report explains.
Upon the depletion of Social Security trust funds, the authors add, raising payroll tax would allow tax income to become sufficient to pay scheduled benefits each year.
Trustees project that paying scheduled benefits after the trusts deplete in 2034 would mean an increase in combined employer and employee payroll tax of 3.4 percentage points. That’s an increase from 12.4% to 15.8%.
In just two election cycles time, Social Security and Medicare trust fund depletion will likely be one of the biggest political campaign issues – and whoever is in power at the time will have tough decisions to make.
Jack Buckby is a British author, counter-extremism researcher, and journalist based in New York. Reporting on the U.K., Europe, and the U.S., he works to analyze and understand left-wing and right-wing radicalization, and report on Western governments’ approaches to the pressing issues of today. His books and research papers explore these themes and propose pragmatic solutions to our increasingly polarized society.