Keeping promises without crushing America under debt

By Congresswoman Virginia Foxx

Generations ago America made a promise to its seniors to fund a safety net for old age. Later America promised to help carry the burden of medical expenses for these same senior citizens.  The first promise, Social Security was a depression-era promise made in 1935.  The second, Medicare, was made in 1965. 

Today these promises are beginning to look very weak as financial and demographic realities press on Social Security and Medicare.  

VIDEO: Click to watch an interview with Foxx and a Social Security and Medicare expert.

Consider the case of Medicare first, since Medicare is in worse shape. This program accounts for 13 percent of the entire federal budget. In 2009 it cost about $480 billion to cover 45 million Americans.  The largest piece of Medicare, “Part A,” is funded almost entirely with payroll taxes; and last year Medicare Part A, or the hospital insurance component, began to pay out more in benefits than it received in taxes.  

Here’s where things start to get dicey.  Now that Part A is paying out more than comes in it is tapping into its “trust fund”.  This trust fund is the excess tax revenue that came in over the past several decades, which unfortunately the federal government has already spent on other programs.  Essentially, the trust fund is a pile of IOUs from the federal government. 

Once those IOUs are all cashed in, Medicare Part A will become what business people refer to as “insolvent”.  You might use a more blunt term: bankrupt.  When do the Medicare Trustees estimate those trust fund IOUs will run dry?  In seven years.  Not seven generations, seven years, in 2017. 

When the trust fund is empty we have what is called "unfunded liabilities".  This catch-all term refers to the amount of benefits promised but not covered by taxes and premiums over the next 75 years. Medicare has $38 trillion in unfunded liabilities over that period once its “trust funds” run out. 

If you are a senior who relies on Medicare, you probably don’t like to hear about unfunded liabilities and trust funds drying up.  Such talk sounds distinctly like promises not being kept.  If you are a younger taxpayer you might wonder how this affects you. 

To put things into perspective for younger taxpayers, Medicare’s problems are not just about its trust fund going dry.  Its problem also lies in the fact that it is on track to take ever larger bites out of the federal budget.  Left unchecked, Medicare spending will nearly double by 2019—to $916 billion per year, according to the Congressional Budget Office—and will account for more than 20 percent of the total federal budget.

The math is pretty simple.  The number of people covered by Medicare will increase from 46 million in 2010 to 79 million in 2030.  Each year the cost of medical care rises faster than the rate of inflation.  So as Medicare braces to cover almost twice the number of people and as medical cost continue to rise, Medicare consumes more and more of the federal budget. 

Of course, the way Washington likes to handle such problems is to borrow more and more money and increase the national debt.  Using debt to pay for the exploding costs of Medicare and its $38 trillion unfunded liabilities is not a viable long-term solution. 

The case of Social Security is not much different.   It also has a trust fund full of IOUs from the federal government.  Starting in 2016 it will begin to draw down that trust fund.  Since the Social Security trust fund is much larger than the Medicare fund, it is expected to last until 2039.  Of course this masks the reality that Social Security will be losing money for decades before it is projected to go broke in 2039. 

As Social Security starts to pay out more than it takes in, it will begin to redeem those IOUs from the federal government.  Since the federal government is borrowing heavily to finance its operations, the repayment of Social Security IOUs will mean trillions of dollars of new federal borrowing. 

For taxpayers who do not expect to be enrolled in Medicare or Social Security for years or even decades, the upcoming funding shortfalls are not purely academic.  These deficits threaten to crush the federal budget and send taxes skyrocketing. 

Ensuring the long-term viability of these programs will require difficult choices.  You’ve probably heard the calculus for a healthy future for Social Security and Medicare.  It’s worth repeating, even if you’ve heard it before.  It involves either scaling back benefits, increasing the age when beneficiaries are eligible or raising taxes on the working Americans whose tax payments provide the cash flow that keep these programs afloat.

None of these options are popular.  While there is a cautionary tale here about government programs once again going astray, we must take action soon to keep these generational promises whole.  The longer we wait to solve the funding problems for Medicare and Social Security the more painful the solutions become.  Not addressing the problem means hurting those who rely on these programs and it means placing a heavy economic burden of debt and taxes on the children and grandchildren of those who depend on Social Security and Medicare. 

For the sake of our future economic prosperity and social stability Congress cannot afford to sit and wait.  These promises won’t keep themselves.