Congress must act to protect Social Security and Medicare

The Old-Age Survivors and Disability Insurance Program, commonly referred to as Social Security, was created under President Franklin Roosevelt. It was established by the Social Security Act as a separate trust fund to be overseen by a Board of Trustees. It was established to make monthly income available to insured workers and their families at retirement, death or disability. Medicare, which was authorized by Congress in 1965, is overseen by the same trustees.

On July 13, the trustees submitted to Congress the reports covering the 2016 fiscal year. The projected dates when each fund will reach the point where it can no longer pay full benefits are as follows:

2035 - Social Security.

2028 - Disability Insurance.

? - Medicare Parts B and D (see below).

2029 - Medicare Part A (hospital insurance).

It is important to note that these trust funds consist of treasury bills and as such are treated as any other federal government debt in that each year interest is paid based upon the total value of each fund. Below is an analysis of actual transactions in 2016.

Social Security Trust Fund

Beginning in 2010, tax revenue became less than what was paid out to seniors; however the deficit was offset by the Treasury Department’s interest payments, resulting in the total value actually increasing. This is still the case today.

Total assets when fiscal 2016 began were $2,780.3 billion. The fund increased by $21.1 billion during the year.

Disability Insurance

This fund increased by $14.1 billion.

Although both funds have a positive financial record at present, as more baby boomers retire it will not be long before both funds begin to shrink each year. Congress needs to become serious about finding long-range solutions to this problem. What can be done?

1. Tax Reform. President Donald Trump’s plans to reduce taxes on the middle class clearly will result in an increased demand for products and services, which should increase employment.

His plan to reduce the repatriation tax from 35 percent to 10 percent will provide an estimated $200 billion in taxes, which can be invested in infrastructure projects, which in turn will create many high-paying jobs. Once our companies bring these funds back from overseas, they can be expected to invest much of them, thereby creating more jobs.

The third proposal is to reduce the 35 percent corporate tax rate, which is the highest in the world. Such action can be expected to increase corporate investment in the United States rather than in Mexico and elsewhere. Every job created will increase the value of both the Social Security and Medicare trust funds.

2. Social Security Reforms. One important action, which would not affect retirees adversely, would be to discontinue the salary cap ceiling. In other words, each employee and employer would pay the required tax on the total earnings of each employee. In addition to corporate executives, our overpaid professional athletes and those in Hollywood would be affected by this change.

Before considering proposals to extend the eligible retirement age or capping the amount a retiree can receive from Social Security, it would seem logical first to implement the tax and reform options noted above and then wait a couple of years to evaluate fully their impact.

Medicare

In all three cases, the total income, including interest paid on each fund’s total assets, exceeded actual outlays with the result that the value at the end of 2016 was higher. Listed below is each fund.

1. Medicare A (hospital) - $199.1 billion ($5.4 billion increase).

2. Medicare B (doctors) - $88.0 billion ($3.9 billion increase).

3. Medicare D (prescription drugs) -$7.6 billion ($0.5 billion increase).

The trustees project that both Medicare B and D will remain adequately financed into the indefinite future because current law provides financing from general revenues plus beneficiaries’ premiums each year to meet next year’s expected costs.

The trustees report that the future is more difficult to predict than it is for Social Security. They have the power to change tax rates, at least as far as those who are retired. They also can change the rate at which the medical profession is reimbursed. The problem is that when such rates are reduced more doctors chose to no longer accept Medicare patients.

In their report, the trustees also point out that medical science can have a very positive effect on Medicare costs by curing certain diseases altogether and by creating new drugs that can deal more effectively with certain diseases and possibly at lower costs.

Finally, the trustees recommend that Congress take action sooner rather than later to address the shortfalls so that a broader range of solutions can be considered and more time will be available to phase in changes while giving the public adequate time to prepare.

Many options are available to improve the solvency of all of these trust funds. Congress needs to spend less time on conducting hearings and more time on passing the legislation needed to improve the economy, increase the workforce, and deal with the problems noted above.

Frank C. Fryburg is a resident of Manheim Township.

Credit: FRANK C. FRYBURG | Special to LNP