Outlook Improves for Social Security, Medicare

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The financial forecast has improved for trust funds covering Social Security and Medicare. A projected increase in tax revenues and slight reductions in benefits mean the programs will be adequately covered a little longer than expected.

STEVE INSKEEP, host:

Here's a date to put in your calendar if you're planning for a long retirement.

The Social Security and Medicare trust funds will last one year longer than expected. New projections show the Social Security Trust Fund running out of money in 2041. The Medicare trust fund is expected to empty in 2019, a good deal sooner.

NPR's John Ydstie reports.

JOHN YDSTIE: Medicare's slight improvement is due to additional projected tax revenues. The extra year for Social Security results in part from a forecast that fewer men will become disabled. Still, the trustees, including Treasury Secretary Henry Paulson, warned both programs remain unsustainable and require reform.

Secretary HENRY PAULSON (Department of the Treasury): The longer we wait, the more costly and more difficult it's going to be do it, and the less flexibility we have, and there'll be a much greater burden placed on the younger generation.

YDSTIE: The report made clear that Medicare's problems come sooner and are much more severe than Social Security's. Nevertheless, Paulson said time of the essence in finding a solution to Social Security's future shortfalls too. But another trustee, John Palmer, said the pension programs' problems do not require immediate action. Still, he said, there's a looming problem.

Mr. JOHN PALMER (Public Trustee, Medicare/Social Security): With the onset of the retirement of baby boom generation, the program will gradually shift, over the next decade, from being a positive to negative contributor to overall federal government finances.

YDSTIE: And if a solution were put off until the Social Security Trust Fund is exhausted in 2041, Palmer says paying promised benefits would require an additional four percent tax on payrolls, or an equivalent cut in benefits. In any case, quick action to overhaul Social Security seems extremely unlikely with Democrats in control of Congress and President Bush in the White House.

Secretary Paulson, who has tried to organize talks on the subject, acknowledged yesterday that his optimism has waned.

John Ydstie, NPR News, Washington.

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