Recession Hurting Social Security, Medicare
STEVE INSKEEP, host:
That beginning is daunting enough, now that we know Medicare and Social Security will run out of money sooner than expected. To talk about their financial future, we've called David Wessel. He's economics editor of the Wall Street Journal, regular guest on this program. David, welcome back.
Mr. DAVID WESSEL (Economics Editor, Wall Street Journal): Good morning, Steve.
INSKEEP: I suppose we should keep this in perspective. Neither Social Security nor Medicare is about to go bankrupt tomorrow, right?
Mr. WESSEL: That's absolutely right, Steve. And it's important to remember that the current recipients are not affected by all these scary projections. The government said the Social Security can continue to pay the benefits it's promised for 30 years, but the program's going to be running in the red, using up its trust fund beginning in 2016, which is just eight years from now. It'll be empty in 2037. And as Secretary Geithner said, the Medicare trust fund -which finances part, but not all of the program - is now expected to run dry in 2017. Now, I thought I think one interesting thing was that Medicare today costs roughly three-quarters what Social Security does. But at current trends, in less than 20 years, Medicare will actually be bigger than Social Security.
INSKEEP: Oh, because the average cost of health care for the average person keeps going up so dramatically.
Mr. WESSEL: Absolutely.
INSKEEP: Now, how big are these two programs, then, that are going to be running short of money?
Mr. WESSEL: Well, if you - I think the right way to look at it is to lump Medicare, which is for the elderly, Medicaid, which is for the poor, and Social Security together. These re the three big government benefit programs. In 1980, they accounted for 40 percent of all federal spending, not counting interest. Last year, it was 44 percent, and by 2030, when the surviving baby boomers are all 65 and over, it'll be up to 60 percent of all spending other than interest, unless something changes.
INSKEEP: You're saying that the majority of federal government spending will just be for those three government programs?
Mr. WESSEL: If no course correction is made. But we know that something will happen. There's an old saying in Washington that when something's unsustainable, it just doesn't go on forever. We just don't know when and what. Fixing Social Security, which was a priority of President Bush's, isn't anybody's top priority right now, even though it's probably easier to fix than Medicare.
But as President Obama is saying, health care is important, and one reason it's important, he says, is because the only way to get a handle on Medicare and Medicaid costs is to slow the growth of health care spending overall for everybody.
INSKEEP: Well, now, David Wessel of the Wall Street Journal, I want to understand another thing, because we're in a period of trillion dollar - more than a trillion dollar budget deficits. How do Social Security and Medicare fit into those deficit projections?
Mr. WESSEL: Well, that's a good point, Steve. Right now, of course, Social Security is making the overall deficit smaller, because it collects more in tax revenues than it pays out in benefits. And the huge deficits we hear about for this year - I mean, the White House is now saying that the current fiscal year deficit will be $1.84 trillion, or 12.9 percent of GDP, the amount of output in the economy. That's just this year's spending.
And what the trustee's report shows us is the government has made huge promises to pay benefits in the future that current tax rates cannot support. So, something has to give.
INSKEEP: You know, the last time this was all debated, David Wessel, people were saying - experts, anyway, were saying - look, this isn't really that hard to fix. It's a huge problem, but it involves many millions of people. You could tweak the taxes a little bit. You could tweak the benefits a little bit, and over a period of time have a huge benefit.
But because several years have gone on and because the situation seems to be a little bit worse and the problem seems to be a little bit closer to us, are we running out of time here?
Mr. WESSEL: Well, the big, ticking time bomb is the retirement of the baby boom, of course, especially in Social Security. We know what it would take to fix Social Security if we fixed it today. If they raise the payroll tax from 12.4 percent, shared by employee/employer, to 14.4 percent, it would be fixed. Or if they cut benefits by 13 percent, it would be fixed, or if they did some combination of those.
Now, those are some big numbers. The problem is that every year they wait, those numbers get bigger because we haven't acted.
On health care, it's really a different question because it's not all about demographics. It's about the rising cost of health care, which is rising faster than everything else, and we haven't yet found the magic formula for slowing that growth.
INSKEEP: David, thanks very much.
Mr. WESSEL: A pleasure.
INSKEEP: Always good to talk with you. David Wessel is economics editor of the Wall Street Journal.