V I E W P O I N T

Commissions, Cuts and Crisis Calls

Why Balancing the Budget on the Backs of Social Security and Medicare Just Won't Work

President Obama and the new Congress have worked diligently to enact a recovery package that will bring this country out of the worst economic crisis since the Great Depression. As that process unfolded, some deficit hawks began to promote the notion that the short-term costs of the economic downturn and the recovery plan ought to be linked to long-term reductions in Social Security and Medicare. They have characterized expenditures for these critical programs as representing an "entitlement crisis" or a "long-term fiscal crisis." Nothing could be further from the truth.

Here is the truth about Social Security and Medicare:

Social Security is Not in "Crisis" and is Not "Unsustainable"

Contrary to the political rhetoric, Social Security is not in crisis. According to the Social Security Trustees, Social Security will have sufficient funds to pay full benefits through the year 2041. The Congressional Budget Office projects that full benefits can be paid through 2049. No other federal program is subject to such strict, long-term spending restrictions and oversight. The Social Security Trustees report every year on the income and outgo of the fund over a 75-year period. Over the next 75 years, Social Security has a funding gap, but that gap is both modest and manageable. Moreover, even if no changes at all were made in Social Security, which we do not anticipate, incoming revenues after 2041 would be sufficient to finance 78 percent of benefits.

Nothing about Social Security's Long-term Funding has Changed as a Result of the Economic Downturn

Social Security's financial condition has not deteriorated, and Social Security is placing no additional burden on the economy or the long-term budget. The manageable demographics of the baby boom generation have not changed. According to the 2008 report of the Social Security Trustees, Social Security expenditures currently represent only 4.3 percent of Gross Domestic Product (GDP), will grow to only 6.1 percent of GDP by 2035, and will level off at 5.8 percent by 2048. While these are annual projections, those projections are unlikely to change significantly in the future. The only thing that has changed is the introduction of new, unfounded political rhetoric linking the economic meltdown to the false notion of an entitlement crisis.

Reductions in Social Security Benefits should not be a Quid Pro Quo for Supporting Economic Recovery

There is no logic to the notion that we should provide immediate economic relief to help millions of Americans weather this current economic crisis while also urging cuts to the very programs which have provided so many seniors and their families their only economic stability during this very scary time.  Social Security and Medicare have provided a safety net for millions of Americans whose savings are depleted, home equity evaporating, and healthcare costs skyrocketing beyond their means. We should be strengthening these programs as we rebuild our economy.  

The National Committee to Preserve Social Security and Medicare strongly opposes reducing Social Security benefits or cutting Medicare in order to balance the federal budget whether it is for the short-term, mid-term or long-term. Social Security, funded by a dedicated payroll tax, represents the bedrock retirement income of nearly every American. Social Security provides a modest benefit of only $13,000 a year for the average retiree. It is the only source of retirement income for nearly 20 percent of retirees and represents over half the income of nearly two-thirds of beneficiaries.

Large cuts in Social Security based on the unfounded rhetoric of an "entitlement crisis" will do unnecessary harm to generations of retirees. Social Security needs to be adjusted modestly to reach solvency, but that is a manageable task.

An Entitlement Commission or Task Force would Lack Transparency and Public Engagement and will Leave the American People out of the Discussion

Several Members of Congress are pressing for enactment of an entitlement commission or task force. We believe that their proposals contain fundamental flaws.

Under these proposals, a very small group of legislators and administration officials would design legislation to address issues affecting Social Security, Medicare and Medicaid along with federal taxes. The legislation would then be fast-tracked through Congress on a limited time schedule with no opportunity for amendment. This runs counter to the call by the Administration for transparency and participation by the American public in policy decisions. Enacting restrictive timelines and prohibiting amendments to push through changes of this importance to millions of Americans, especially senior Americans, ultimately disenfranchises the public and hurts the political process.

Social Security and Medicare are Distinct Programs and Need to be Addressed Separately

Social Security and Medicare are distinct programs with unique challenges and solutions. Less than 20 percent of the combined shortfall projected in Medicare and Social Security over the next 75 years is in the Social Security program. While combining these programs under the "entitlement" umbrella helps create a sense of crisis, this approach offers nothing meaningful toward finding real policy solutions. The move to create an "entitlement" commission suffers from the same flawed premise. The challenges facing Social Security and Medicare cannot be handled with a one-size-fits-all approach.

Medicare Provides Basic, Affordable, Universal Health Care to Seniors

While Medicare may not be perfect, it has been a godsend for millions of seniors who were abandoned by private industry decades ago. Prior to Medicare, less than 50 percent of seniors had health care coverage. Today, Medicare is critical in providing for the health care needs of 97 percent of those over age 65. About 70 percent of Medicare beneficiaries have incomes under $25,000 a year and 85 percent have incomes under $40,000. Almost one-half of elderly households have incomes under $20,000, and they are already spending one-third of their incomes on health care, even with Medicare coverage.

Medicare's Costs are Driven by the Cost of Health Care

Although Medicare costs are rising for both beneficiaries and the federal government, the increases are not unique to Medicare. Because Medicare is a health care program, it is subject to the same upward inflationary pressures that are forcing many employers to drop their policies and leaving their workers to join the ranks of America's 46 million uninsured. In fact, Medicare's low administrative overhead and efficiencies of service have helped Medicare's costs grow at roughly the same rate as the cost of private health insurance for the under-65 population, despite seniors' higher need for services.

America Does Not Face an Entitlement Crisis; It Faces a Health Care Financing Problem

According to the Congressional Budget Office, the rate at which health care costs grow relative to national income - rather than the aging of the population - is the most important determinant of future federal Medicare and Medicaid spending . In fact, according to projections by the Congressional Budget Office (CBO), if every entitlement in the federal budget were repealed outright - eliminating Social Security, Medicare, Medicaid and other critical programs - but nothing were done to slow the growth in health care costs overall, we would still find ourselves spending almost 70 percent of the nation's wealth on health care by 2082. On the other hand, if the rate of growth in overall health care is restrained so it is no longer growing faster than the rest of the economy, Medicare's long-range financial deficit could be cut by well over one-half. 

Social Security and Medicare are Needed Now More than Ever

The current economic meltdown has reinforced the importance of Social Security as the basic foundation for retirement. The collapse of investment savings and the sharp decline in housing values have significantly reduced the retirement security of millions of Americans. Social Security was created in times much like today to provide Americans with a foundation of security they could count on in old age. Surely, the lesson of the current financial crisis is not that we should reduce the protections of America's most successful retirement security program. Nor is the lesson that we should cut health benefits for those over 65 when health coverage for all Americans has emerged as an achievable goal.

Government Relations and Policy, February 2009

The National Committee is a nonprofit, nonpartisan organization that acts in the interests of its membership through advocacy, education, services, grassroots efforts and the leadership of the board of directors and professional staff. The work of the National Committee is directed toward developing a secure retirement for all Americans.