[Note: The post below has been edited to fix an error at the end of the first paragraph. The last sentence of that paragraph now correctly states that the projected date that the Medicare trust fund is likely to reach a zero balance is 2017. NHB]
On May 12, the Trustees of the Social Security program released their annual financial report, which provides (among other things) 75-year projections of the financial flows associated with the program as well as the size and projected path of the Social Security trust fund balance. The standard media response to the annual release is to focus on the date at which the trust fund is projected to be depleted, and this year is no exception. The headlines have emphasized that the depletion date for Social Security has been moved up to 2037 from last year's estimate of 2041, the change being directly related to the depth of the recession. Medicare's finances present immediate challenges, with the trust fund for that program likely to hit zero dollars in 2017.
I will be writing a guest column on FindLaw's Writ next week discussing some of the details of the Social Security Trustees' Report; and I will also be publishing a more lengthy analysis of the finances of the Social Security program in Tax Notes later this month. (You can read my analysis of this issue from two years ago here or at 92 Cornell L. Rev 257.) Here, I will offer a few preliminary thoughts on the big conclusion that one should draw from this year's report and on the media coverage and political discussion of the report.
As I argued on this blog earlier this year, Social Security should not be a legislative priority for President Obama -- or, indeed, for anyone with a sense of proportion about the supposed "crisis" in the program. The Social Security system might or might not "run out of money" in the sense that the trust fund could reach a zero balance a few decades from now. That potential depletion date moves around depending on developments in the economy, making it unsurprising that the date moved forward by a few years in the current economic environment. If anything, the relatively small change in the long-term estimates is good news, since this demonstrates that the system can weather even the current, severe crisis with relatively minor changes in its long-term finances.
(Aside: The Trustees actually provide estimates of long-term finances under two alternative scenarios, one of which (based on estimates that are the least pessimistic of the three scenarios but that are not, in my opinion, affirmatively optimistic) shows that the Social Security Trust Fund will never be depleted while the other (the most pessmistic) has the trust fund hitting zero in 2029.)
One of the major problems with media coverage of Social Security is that reporters generally buy into the narrative that we have an "entitlements crisis," lumping together Medicare, Medicaid, and Social Security. This is extremely misleading, because the health care-related programs have much different financial prospects, caused by the high rates of inflation in health care costs. Media coverage of this year's report was no different, with "entitlements" and "Social Security and Medicare" being treated as huge ongoing crises that we might be addressing if only politicians were not such cowards. Bizarrely, the coverage this year added into this misleading mix the fact that Social Security recipients will not receive a cost-of-living adjustment this year for the first time in decades. Even though this has been known for months, and even though it is the result of changes in the path of the cost of living (obviously), reporters are treating this as somehow related to Social Security's "deteriorating finances," which is just plain wrong.
The good news is that President Obama's spokespeople, and many Democrats in Congress, are finally making the correct argument about "entitlements": The real long-run fiscal problem is directly related to the escalating costs of health care, and those costs affect not just Medicare but privately-financed health care as well. The appropriate response to any concerns about the long-run fiscal projections, therefore, is to move forward with legislation to address the fundamental problems of the U.S. health insurance and health care systems. While I disagree with their further suggestion that we can move on to "fix" Social Security after we have dealt with health care (which implies quite incorrectly that Social Security is broken), it is at least good to see that the majority party's stated priorities are appropriate to the real problems at hand.
The biggest political problem, of course, is that these programs are extremely complicated and thus are easy targets for demagogues. (Example: It is true that there is nothing "real" in the Trust Funds; but that fact is actually an argument to be less concerned about Social Security rather than more so.) Seeing movement in the direction of sanity in discussions about Social Security's long-term finances is heartening indeed. We are actually becoming more reality-based.
-- Posted by Neil H. Buchanan