Social Security program costs will exceed tax revenues in 2010 and 2011, due in large part to the recent economic downturn, according to the annual Social Security Board of Trustees report released today. Tax revenues will again support spending in 2012 through 2014. But benefits will begin to permanently exceed tax revenues beginning in 2015, one year earlier than estimated in last year’s report.
“The improving economy is expected to result in rough balance between Social Security taxes and expenditures for several years before the retirement of the baby boom generation swells the beneficiary population and causes deficits to grow rapidly,” says Treasury Secretary Timothy Geithner in a statement. The Social Security trust fund is projected to be exhausted in 2037, the same year forecasted last year. After 2037 there will be sufficient tax revenue coming in to pay about 78 percent of scheduled benefits.
Social Security paid $675 billion to about 53 million beneficiaries in 2009 and spent $6.2 billion administering the program. An estimated 156 million people paid payroll taxes resulting in $667 billion in net contributions to the trust fund. The trust fund also earned $118 billion in interest and brought in $22 billion from the taxation of benefits in 2009. “The fact that the costs for the program will likely exceed tax revenue this year is not a cause for panic but it does send a strong message that it’s time for us to make the tough choices that we know we need to make,” says Social Security Commissioner Michael Astrue.
The Affordable Care Act’s new tax on high-cost health care plans is expected to subject more earnings to Social Security and Medicare taxes, which will generate higher payments to the trust funds. The health reform law is projected to have an even bigger impact on Medicare's finances. Provisions of the law are expected to postpone the exhaustion of the Medicare Hospital Trust Fund by 12 years from 2017 until 2029.
“These favorable changes depend critically on a specific Affordable Care Act provision, which will slow the rate of growth in Medicare payments to most categories of providers by about 1.1 percent annually in anticipation of improvement in productivity,” says Don Berwick, administrator of the Centers for Medicare and Medicaid Services. “It is important to note that the effect of these adjustments will reduce payment rates over time, and it is possible that providers would not be able to slow their cost growth correspondingly.”
Medicare spent $509 billion providing health insurance coverage to 46.3 million people in 2009, but income was only $508 billion. Medicare trust fund expenditures have exceeded income since 2008 and are projected to continue doing so through 2013. Beginning in 2014 income is expected to exceed spending for several years.