President Biden and former president Donald Trump don’t agree on much, but both have pledged not to touch Social Security benefits. This is a reflection of political reality, which is that a lot of seniors, who tend to vote at high rates, depend on the programs, and that they are popular generally. Social Security has a broadly progressive impact on income distribution: The bottom half of earners rely on it to stay out of poverty in retirement. Financial reality, though, is that if the programs aren’t reformed, and run out of money to pay required benefits, cuts could become unavoidable.
The latest reports from the Social Security and Medicare trustees, released on Monday, reinforce that sobering fact. Social Security will be insolvent by 2035 and Medicare’s Hospital Insurance Trust Fund by 2036. These dates are slightly farther in the future than the estimates in last year’s report. Because of a strong labor market, more workers earned more money subject to the Social Security and Medicare payroll taxes. Nevertheless, the trustees warn that postponing a crisis is a far cry from solving it.
The 2024 campaign is probably not going to feature much honest debate about this, but the conversation has to happen sooner or later. Saving Social Security and Medicare requires reform.
We laid out one element of any viable proposal last year: subjecting more wages to payroll taxation. Currently, it applies to up to $168,600 in wages a year. Raising that limit would bring in much-needed revenue. And many Americans say they support the idea. Other reforms include gradually raising the retirement age for younger generations and slowing benefit growth for the top half of earners.
These won’t be popular or painless, but, as even dithering lawmakers often admit privately, the longer change is postponed, the more painful it will be in the end. Or, as the trustees’ report puts it, “significantly larger changes would be necessary if action is deferred.”
On the Medicare side, the report paints a reasonably hopeful picture. The Hospital Insurance Trust Fund is now on track to be depleted by 2036 — five years later than last year’s estimate. In addition to the strong labor market, a decline inpatient and home health-care spending in recent years has helped the program’s finances. But the report makes clear that “Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation. Such legislation should be enacted sooner rather than later to minimize the impact on beneficiaries, providers, and taxpayers.”
On Medicare, Mr. Biden has proposed changes that would extend the solvency of the program for 25 years: adding more drug price negotiations (on top of the ones in the Inflation Reduction Act) and raising the Medicare tax on those earning more than $400,000 a year. Give him credit for at least discussing the topic — but deduct points for placing the entire burden of reform on unpopular drug companies and high-income earners. Structural reforms to the Medicare Advantage program, teaching hospital subsidies and payments for outpatient services could and should save billions with relatively modest sacrifice from beneficiaries.
Given the potential demographic changes that still might upend forecasts, the trustees were wise to adopt more realistic assumptions about U.S. population growth. They now forecast a total fertility rate of 1.9 per woman, down from 2.0 in last year’s report. That might still be too optimistic. Last year, the rate dropped to 1.62. An additional way to boost the working-age population that pays into Social Security and Medicare is through immigration, another reason for Congress to pursue comprehensive reform — and for the country to avoid the draconian restrictionism that Mr. Trump favors. The positive impact on entitlement program finances from the past few years of full, or near-full, employment provides yet another reason for government to pursue that goal, consistent with low inflation.
